Shares of Nio (NYSE:NIO), China’s premium electric vehicle maker, blew the doors off of 2020. Beginning the year at $4, NIO stock shot up like a rocket through year-end, finishing 2020 at $50. Mark it down as one of the best years of any stock has had in recent memory (subscribers to The Daily 10X Stock Report were able to partake in this enormous rally, as I recommended NIO stock to readers back when it was trading at just $4).
But stocks don’t go up in straight lines. After a red-hot start to 2021, NIO has since trended lower, losing more than 30% of its value over the past three weeks, thanks to general fear in the market about rapidly rising interest rates.
This recent weakness in NIO is an opportunity — and the time to buy is now.
Rising rates fears are both overblown and ephemeral. Meanwhile, NIO recently provided a strong delivery update which implies that business momentum continues to ramp. The outlook strongly implies that NIO is positioned to have another breakout year in 2021. And both the fundamentals and technicals strongly support the thesis that NIO is a great buy below $50.
So, forget the noise and buy the dip. This stock is going to race to $100.
Here’s a deeper look.
NIO Stock: Overstated Fears
The recent rising in interest rates — the 10-Year Treasury yield has pushed above 1.3%, from 1.1% at the start of the month — is something to watch closely. But its impact on the market is both ephemeral and overstated.
Rates are pushing higher right now because of huge fiscal and monetary stimulus. That inflationary force will continue for the foreseeable future. But it’s simultaneously fighting against much bigger, more enduring deflationary forces in automation and globalization.
That is, automated technology is capable of replacing millions of jobs today. Think language processing software automating call-centers and customer service reps. Think self-check-out kiosks automating cashiers. Think telehealth platforms automating the hospital front desk.
Technology has advanced to the point of being ready to replace millions of jobs. At the same time, thanks to Covid-19, more and more enterprises are comfortable with adopting these technologies. The result is that, over the next few years, we are going to see huge and permanent job loss in some sectors of the economy.
That’s an enormous deflationary force.
Equally as powerful is globalization, as the global geopolitical stage is now set for globalization to come back into the spotlight and for companies to more aggressively outsource labor and production – which will keep consumer prices low.
So, yes, the government is spending a bunch of money. But they almost have to spend a ton of money just to keep rates from going negative.
Long-term, we are stuck in a lower-for-longer situation when it comes to interest rates.
That’s important, because while higher rates will hurt equity valuations, my numerical analysis of the relationship between interest rates and equity valuations dating back to the 1980s found that the 10-Year Treasury yield would have to rise to 2.5% before it starts to have a meaningful impact on valuations.
News flash: That isn’t going to happen anytime soon.
So, the recent weakness in the stock market is a buying opportunity — especially in high-quality growth stocks like NIO stock.
Strong Business Update
Ignoring the interest rate noise and turning our attention to NIO’s business fundamentals, we see nothing but good things.
NIO recently reported January delivery numbers. They were nothing short of spectacular. The company delivered 7,225 vehicles last month. That is up 352% year-over-year, marking NIO’s tenth consecutive month of triple-digit growth and its single-best year-over-year delivery growth rate ever.
By itself, this 350%-plus delivery growth rate is impressive.
But there’s better news: January deliveries rose 3% month-over-month.
That never happens in the auto market. December deliveries are usually enormous, thanks to holiday demand as consumers rush to buy new cars for Christmas. Then, deliveries almost always fall off a cliff in January, as the jolly times end and the holiday demand dries up.
For example, NIO’s January 2020 deliveries dropped 50% from December 2019.
But NIO bucked this trend in 2021. NIO’s sales rose from December to January. That strongly speaks to the momentum underlying the business today.
Zooming, trailing twelve month deliveries now stand just above 49,000 — up 13% month-over-month and 143% year-over-year.
All in all, it appears that NIO’s business isn’t just sustaining its robust 2020 momentum, but actually building on it. Things are only getting better here. And the outlook implies that will only continue to get better — which, of course, implies better days ahead for NIO stock.
Robust Outlook for 2021
NIO had a strong 2020. No doubt it. But the fundamentals imply that NIO could have an even better 2021.
China’s auto sales struggled in the first half of 2020 thanks to the Covid-19 pandemic. They then rebounded in the second-half of the year as pent-up consumer demand coupled with low interest rates. Those two drivers will remain vigorous in 2021, and for the year, China’s auto sales are expected to rise 4%.
EVs will be at the epicenter of this rebound in China’s auto market. Thanks to government support, increasing supply, falling costs, and shifting consumer demand, China’s EV market is expected to grow by an impressive 40% in 2021.
NIO will be at the forefront of this booming Chinese EV market.
The company just launched a new premium sedan, it’s fourth EV model. NIO also just announced a brand-new battery that significantly boosts performance specs such as driving range and recharge time. Plus, the company is dramatically improving its battery swapping stations to be far more efficient with much more capacity.
In other words, NIO will materially improve its business fundamentals in 2021, at the same time that China’s EV market catches fire.
That combination ultimately implies that NIO could have better year this year, than it did last year.
Favorable Valuation & Technicals
The fundamentals and technicals underlying NIO strongly point to the idea that the stock is a great buy here and now below $60.
On the fundamentals side, NIO has a long growth runway ahead of it as the company turns into a globally dominant supplier of premium EVs with a healthy margin profile thanks to falling battery costs and strong pricing power. Long-term, I see NIO as the world’s second-largest EV maker, behind only Tesla (NASDAQ:TSLA).
My numbers indicate that this reality makes Nio’s stock worth at least $60 today and likely somewhere closer to $70, based on the company’s earnings potential over the next decade. Indeed, based on that earnings potential, I see NIO racing to $100 in the foreseeable future.
Meanwhile, on the technicals side, Nio’s stock is rapidly closing in on its 100-day moving average ($45) — a level that the stock has held ever since its big breakout from $4 back in May 2020. Given the company’s robust fundamental business momentum and favorable valuation, I don’t see NIO breaking below the critical 100-day moving average anytime soon.
Thus, I think the Nio’s sell off is in its final stages. The bottom is close. Soon, shares will reverse course and power to $100.