Despite the unpredictability in China-based stocks, Nio (NYSE:NIO) stock is remarkably steady.
The electric vehicle manufacturer has tremendous upside ahead as competitor Rivian prepares for its debut as a publicly traded company. Tesla (NASDAQ:TSLA) crossed the $1.2 trillion valuation effortlessly. The quick rise in EV stocks will boost NIO stock.
After Nio posted October deliveries, investors took advantage of the brief intra-day dip below $40. The EV giant has a good chance of lifting off from here.
Sustained Uptrend For NIO Stock
When the Nasdaq composite started to correct last month, Nio shares bottomed at below $35. The index’s sharp rally encouraged bottom-fishers to buy Nio. On Nov. 1, the premium smart EV supplier in China reported a 27.5% year-on-year drop in vehicle deliveries. It delivered 3,667 units. Nio said a drop in production volume is due to the restructuring and upgrades of manufacturing lines.
At first, markets reacted negatively to the production issues. Months before that, Nio said that supply chain disruptions would hurt output. Conversely, Tesla posted impressive deliveries and did not face any output problems due to semiconductor chip shortages. Fortunately, markets are in a forgiving. They will accept Nio’s explanation that it prepared for new product introductions from Sept. 28 to Oct. 15.
Nio resumed its ES8 production at the end of last month. Its ES6 accounted for most of the productions in the period. The company said that it delivered 145,703 cumulative deliveries as of Oct. 31.
Opportunity
Lucid Group (NASDAQ:LCID) is trading at a $65 billion market capitalization after selling a small handful of premium EVs in the last weekend. Nio’s market cap of barely $72 billion is too low. Few controversial headlines surround Nio. For example, in August, Nio denied tampering with data after a fatal crash. To prevent future crashes, Nio now requires its customers to complete a test on its app. After doing so, users may unlock the ability to use Navigate on Pilot.
The test features a six-minute video. Customers must answer a 10-question multiple-choice quiz. Once they pass, they will have access to the assisted driving feature.
Nio’s response to the crash is critical in earning customer trust. As it expands to Europe starting in Norway, the EV firm cannot have customers worried about product safety. Nio is not alone in protecting customers from themselves. Over the users, Tesla drivers circumvented the automation safety features. This resulted in fatal crashes. It also gave the media a chance to question Tesla’s safety.
Risks
Nio’s 3,667 deliveries for the month is a weak performance. The company did not report its order book. Without new order figures and its backlog, investors have a partial view of the company’s business health.
Competitor XPeng (NYSE:XPEV) posted a 233% increase from a year ago in deliveries, to 10,138 units. The firm almost doubled its P7 deliveries in Oct., to 6,044 units. Cumulative deliveries of 100,000 still trailed that of Nio’s total.
The relatively high market capitalization of Lucid, Rivian, and Tesla may not lift Nio’s value. Markets may decide to invest locally, shunning China-based companies like Nio. Still, XPeng broke out to the upside last month. Li Auto (NASDAQ:LI) also attracted buyers.
Fair Value
Ten analysts offer a one-year price target that ranges from $45 to $72. Per Tipranks, the average price target is almost $60, for a potential return of over 40%.
Investors who missed the LCID stock rally since shares fell to $17 in Sept. may consider Nio stock instead. Now that Tesla stock trades at over $1,200 and doubled in the last year, investors are wary of buying at current levels. Stuck in a trading range of between $35 and $50, Nio may reward the patient investor.
The company posted light October deliveries. After the company reports demand levels for its refreshed EVs, it may raise its outlook for the year. Nio has no reason not to increase investor expectations. XPeng is posting strong sales. China is encouraging its citizens to embrace green solutions.
Also, should EV sales stall, China could reinvigorate demand by offering local incentives and subsidies.
Your Takeaway
Markets lost interest in Nio stock in the last few months. But the upcoming initial public offering for Rivian and Tesla’s trillion-dollar valuation may change that. EV investors scrambling to find the relatively cheapest stock should look at Nio stock again. The company started expanding outside of the China market into Europe. Growing sales in that region is a slow process. If Nio experiences strong demand and satisfied customers from Norway, it will increase its efforts there.
The expanded addressable market will lead to higher revenue. This would lift Nio’s share price from current levels.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
