Coming off a red-hot 2020, shares of Chinese electric vehicle maker NIO (NYSE:NIO) have cooled considerably in 2021. Year-to-date, NIO stock is down 15%.
Despite this weakness, the fundamentals underlying China’s most valuable EV maker have steadily improved over the past few months.
The Chinese economy is rebounding with vigor. EV sales in the country are surging. And, likewise, NIO’s delivery volumes are surging. What’s more, the company announced a new car model, new battery and a new battery swap station design.
And now, NIO’s biggest competitor — Tesla (NASDAQ:TSLA) — is coming under fire in China. As a result, many analysts think that Tesla will have a tough time gaining distribution and selling cars in China. Of course, that’s good news for NIO, since it means that most of the premium EV demand in China will funnel to NIO, not Tesla.
All in all, the fundamentals underlying NIO remain very healthy. NIO stock is just going through a short-lived consolidation period after a breakout year in 2020. This consolidation period is healthy. And it will pass. When it does, NIO stock will get back on a winning path.
So, be patient, buy the dips, and stay focused on the long haul.
Here’s a deeper look.
NIO Stock’s Strengthening Fundamentals
For a second, forget the NIO stock price. Let’s look at the fundamentals underlying the Chinese premium EV maker. You’ll notice that they are quite good, and only getting stronger.
China’s economy is rebounding with vigor from the Covid-19 crisis. Retail sales in China have risen for six straight months, including a 34% gain in January/February 2021. The country appears to have a good handle on the pandemic, with life in China looking very “normal” today. The government also continue to enact very accommodative money policy.
Net net, China’s economy is on a very healthy grounds today, and projects to remain so for the near future.
In that healthy economy, EV sales are surging. Close to 104,000 new EVs were sold in China in February, up about 600% year-over-year. With the government continuing to promote EV sales through subsidies and the EV support infrastructure in China rapidly expanding, there is a clear runway ahead for EV sales to keep growing at a rapid pace.
In the burgeoning Chinese EV market, NIO remains a bright star. The company has rattled off 11 consecutive months of triple-digit delivery growth, including nearly 700% growth in February. With a new sedan set to launch later this year, a new battery pack being integrated into cars, and a redesigned battery swap station design, NIO has put itself in a good position to sustain 100%-plus delivery growth for at least the next several months — and maybe even into the end of 2021.
Financially speaking, the company’s gross margins and vehicle margins continue to improve very rapidly, while net losses are narrowing just as rapidly. The balance is loaded with cash. Profits appear to be just around the corner. The stock’s 11X forward sales multiple is as cheap as the stock has been in six months.
Big picture: The core fundamentals underlying NIO stock remain very, very healthy.
Tesla Troubles are NIO’s Gain
Very recently, the fundamentals underlying NIO stock were strengthened by elevated tensions between China and Tesla.
Specifically, Tesla cars were banned from Chinese military complexes and housing compounds because the government was worried that those cars were collective sensitive data via their built-in cameras. CEO Elon Musk assured the government that Tesla would never provide the U.S. government with data collected by its vehicles. Still, the cars remain banned.
These Tesla troubles are NIO’s gain.
The reality is that there is a Cold Tech War brewing between the U.S. and China. Tesla is caught in the crossfire. The company is based in the U.S., but sells a lot of cars in China. About 25% of Tesla’s 2020 deliveries were in China.
If Tesla were to get more permanently disadvantaged or even banned in China, then NIO would stand alone as the only viable premium EV option.
Will that happen? Not sure. But, with tensions elevated and the spotlight on Tesla, it does seem like NIO will leverage its “homecourt” advantage to sell a lot of cars in China in 2021, and steal market share from Tesla.
Stay Focused on the Long Haul
When it comes to NIO stock, you have to stay focused on the long haul.
As stated above, everything at this business is trending in the right direction. The economy is strengthening. Retail sales are rebounding. EV sales are surging. Deliveries are soaring. Same with revenues. Profit margins are rapidly improving. There are multiple catalysts on the horizon — a new car, a new battery, Tesla ban, etc. — which could juice this growth narrative even further.
Yet, despite that favorable fundamental backdrop, NIO stock has been weak over the past few months.
This is just near-term weakness. You have some inflation noise in there. You also have some consolidation noise in there. Eventually — and inevitably — all this noise will pass. When it does, the focus will return to the fundamentals, and NIO stock will drive higher.
Bottom Line on NIO Stock
NIO stock is one of my favorite tech stocks to buy on the dip.
But it’s just one of my top electric vehicle stocks, which represent the cream-of-the-crop when it comes to disruptive technological innovation in EVs. These companies all feature second-to-none management teams and massive long-term potential.
Each of these next-generation mobility stocks could post Tesla-like returns, including a secret startup that’s spearheading the self-driving revolution, and a company I consider my EV “sleeper” stock of the decade.
To see my entire lineup of innovative next-generation EV stocks, click here.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
By uncovering early investments in hypergrowth industries, Luke Lango puts you on the ground-floor of world-changing megatrends. It’s how his Daily 10X Report has averaged up to a ridiculous 100% return across all recommendations since launching last May. Click here to see how he does it.
