Nio (NIO) has sold off sharply, along with other EV stocks, while a global chip shortage could curb growth for the Tesla of China. Is Nio stock a buy right now?
Nio went on a tear in 2020, doubling electric-vehicle (EV) sales and coming back from the brink of bankruptcy. The EV startup kicked off this new year strong, unveiling its first electric sedan and posting a huge January sales gain. Then EV stocks at large sold off sharply along with Tesla (TSLA), the global leader in electric cars. Nio stock has lost 32% since hitting a high of 66.99 on Jan. 11.
On March 8, analysts at Jefferies flagged risk to Nio stock from tougher competition for Nio’s premium ES8 electric SUV. In China, homegrown EV startups and foreign brands heavily compete for the luxury SUV segment. Tesla offers the Model Y in China and Volkswagen (VWAGY) the ID.4.
This week, Volkswagen set out an aggressive EV roadmap, moving to secure battery supplies and setting a target to sell 500,000 all-electric vehicles in 2021, on par with Tesla’s achievement last year.
For context, Nio sold 43,728 EVs in 2020 but could achieve 100,000 EV sales in 2021, as it ramps up production capacity.
Nio Stock Technical Analysis
But Nio stock found support at the 200-day line, a positive sign. The rebound came amid a Reuters report that U.S.-listed Nio could carry out a secondary listing in Hong Kong as soon as this year, tapping an investor base closer to home to fund expansion. In addition, a Reddit post intensified speculation that Nio’s premium electric SUVs could be gearing to enter the U.S. market.
Nio stock is finding some resistance at its 21-day line.
The relative strength line for Nio stock rose sharply for most of 2020, but has been lagging since early January and especially since early February. A rising RS line means a stock is outperforming the S&P 500 index. It is the blue line in the chart shown.
Nio stock went public at 6 in September 2018. It hit a low of 1.19 in late 2019 on sales and cash woes. The company staged a strong rebound in 2020 along with China EV sales.
Shares earn a lackluster IBD Composite Rating of 62 out of 99. The rating combines key fundamental and technical metrics in a single score. But a 98 RS Rating out of 99 well exceeds the 80 or higher that investors in top growth stocks would want to see.
Nio’s Accumulation/Distribution Rating of C- reflects roughly equal buying and selling by institutional investors over the past 13 weeks. Nio is well traded, with decent institutional backing: 706 funds owned shares as of December. In fact, Nio shows eight quarters of rising fund ownership, according to the IBD Stock Checkup tool.
Nio Earnings And Fundamental Analysis
On key earnings and other fundamental metrics, Nio lags. It’s a young and fast-growing company, still looking to turn a profit.
Nio stock earns an EPS Rating of 51 out of 99, and an SMR Rating of D, on a scale of A+ to a worst E. The EPS rating compares a company’s earnings growth vs. other companies. The SMR Rating measures sales growth, profit margins and return on equity.
On March 1, Nio delivered a wider-than-expected loss for the fourth quarter. Nio lost 14 cents a share as revenue more than doubled to $1.02 billion. Quarter over quarter, Nio saw vehicle margins expand and cash nearly double. While earnings remain elusive, losses are narrowing.
Analysts expect Nio to pare losses to 42 cents per share in all of 2021 from 66 cents in 2020. Revenue is seen more than doubling to $5.23 billion in 2021, according to Zacks Investment Research. It’s expected to grow earnings a further 75% in 2022 as revenue increases 80%.
For the current quarter, China’s Tesla warned of slower growth as a shortage of chips hits EV production.
While Nio’s Q4 results were mostly in-line, it outlined “a very real path” to a milestone 100,000 deliveries in 2021, Deutsche Bank analysts said in a March 2 note.
“With demand growing rapidly driven by brand awareness and consumer sentiment shifting, we believe NIO is on track to be a market leader in the China premium segment,” analysts Edison Yu and Emmanuel Rosner wrote.
Five analysts on Wall Street rate Nio stock a buy, four have a hold and none has a sell, per Zacks.
China EV Sales, Competition Grow
In the first quarter of 2020, Nio’s sales slumped as the coronavirus outbreak in China kept buyers away. But sales quickly rebounded, more than doubling for the full year.
Sales slowed this year to 5,578 vehicles in February from 7,225 vehicles in January, amid the Lunar New Year holiday. On a year-over-year basis, they were up 352% in January and up 689% in February. Fellow China EV startups Li Auto (LI) and XPeng (XPEV) also slowed in February after big sales gains the prior month.
As EV competition intensifies, Nio stock and China EV stocks have come under pressure, according to Deutsche Bank.
In January, Tesla launched its made-in-China Model Y, a slightly cheaper rival to Nio’s new EC6 electric crossover. In late March, Volkswagen will begin delivering the far-cheaper, made-in-China ID.4. Also, Ford will make the Mustang Mach-E electric crossover in China for consumers there. Plus, Chinese auto giant Geely and tech giant Baidu (BIDU) plan to jointly build EVs. Apple (AAPL) supplier Foxconn also eyes the EV market.
Meanwhile, China’s BYD (BYDFF) has made a big luxury push with the Han electric sedan. BYD, backed by Berkshire Hathaway (BKRB) chief Warren Buffett, is one of the world’s biggest EV and battery makers.
Nio’s expanding capacity in China, while looking to launch in Europe later this year. Tesla’s also looking to expand in the European market, which overtook China in EV sales last year.
Investing in Chinese companies brings on considerable risk of regulatory uncertainty. China slashed EV subsidies by 20% at the start of 2021, a move that could affect Nio. While the government is trying to wean consumers off subsidies that juice sales, earlier cuts slowed EV purchases.
Outlook For Nio, EV Stocks
As the EV battle heats up, China’s Nio, Li Auto and XPeng are expanding operations to fend off Tesla on home turf.
Nio’s looking to increase EV production capacity to 10,000 units per month in the second half of 2021. It expects to reach 150,000 units per year in the first quarter of 2022. Currently, it’s limited to 7,500 units per month due to the chip shortage and robust demand for its new, longer-range batteries.
Analysts are bullish about both China EV sales and global EV sales, adding further lift to Nio stock.
In 2021, EV sales are expected to rise more than 30% to 1.8 million units in China, according to the China Association of Automobile Manufacturers. Globally, EV sales are expected to rise 70% in 2021, according to IHS Markit.
Growth drivers for Nio include the new EC6 electric crossover and the ET7, a highly autonomous electric sedan set to arrive in early 2022. The ET7 could be the first EV to offer a solid-state battery — and 600 miles of range. Meanwhile, Nio’s putting battery-swapping technology at the heart of its business model.
In 2020, Nio launched a subscription plan for batteries. Basically, the car and the battery are sold separately. Users can buy Nio EVs without batteries for a lower price and “rent” batteries for a monthly fee. They also have an option to swap car batteries depending on their needs.
More than half (55%) of customers opted for BaaS in February, up from 35% in November. Eventually, Nio also expects to generate recurring software subscription revenue from its autonomous driving system.
Those moves reflect a remarkable journey. Founded in 2014, Nio had little experience in vehicle manufacturing when it came on the scene. But it promised a bright future. Its Chinese name, Weilai, means “blue sky coming.”
Unlike Tesla, Nio does not manufacture itself. It partners with Jianghuai Automobile Group to build its luxury electric SUVs.
Rival Electric Car Stocks
Nio stock belongs to the auto manufacturers industry group. Auto manufacturing ranks No. 86 out of 197 industry groups tracked by IBD.
In addition, several legacy automakers plan a transition to electric vehicles. GM, Ford and Volkswagen have big plans for EV production and sales in China. Even Italian supercar maker Ferrari (RACE) eyes a transition to hybrid-electric mobility.
At some point, soaring output of electric cars could outpace overall demand, squeezing sales and prices. For EV stocks, supplies of batteries and battery metals are another issue. Rising costs for battery materials could stall the sharp drop in battery prices in recent years.
Is Nio Stock A Buy Now?
From a fundamental perspective, Nio’s financial condition is improving after debt and liquidity fears slammed shares. Nio is paring losses while delivering huge top-line growth.
The outlook for Nio’s sales and overall EV sales seems robust. After robust sales in China, Nio’s plans to expand internationally promises more runway for growth.
In addition, Nio’s innovating battery technology. But the EV wars are heating up, as legacy auto and tech giants ramp up or get into the game. In the near term, the chip supply crunch will curb Nio’s growth plans.
From a technical perspective, the white-hot China EV stock failed a breakout past a 57.30 buy point. Its RS line is lagging after a strong rally last year. Shares are also not in a buy zone and no new pattern is forming.
Bottom line: Nio stock is not a buy right now. Put it on your watchlist and wait for a rebound off the 10-week line or a new base to form.
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