Between Tesla’s overpricing and the mistrust in EV startups thanks to Nikola, could NIO stock be poised for growth as Chinese sales surge?
Nov. 3, 2020
U.S. presidential election time is typically a quiet one for Wall Street in terms of actual news. All eyes are on the ballots and what will result, even though presidential elections have little real bearing on the market in the long-term, as discussed in our latest podcast, featuring Morgan Housel.
So let’s look elsewhere to a sector that is making big moves: the Chinese electric vehicle (EV) market.
Why is NIO stock up?
NIO (NYSE: NIO) stock rose 9% yesterday, hitting all-time highs after the ‘Tesla of China’ reported 5,055 October vehicle deliveries in China, an increase of 100% year-over-year (YoY). So far in 2020, vehicle deliveries are at 31,430, a 111.4% increase compared to the same time last year.
Breaking down the sales, these 5,055 vehicle deliveries consisted of 2,695 ES6s, its 5-seater SUV; 1,477 ES8s, the 6- and 7-seater SUV; and 883 EC6s, the coupe SUV.
Though these numbers pale in comparison to the likes of Tesla, which delivered a record 139,000 vehicles in Q3 alone, at least NIO is getting products out the door. If you haven’t guessed, this is a subtle dig at Nikola and its recent spate of controversies, but for NIO, investors can be assured that growth is happening and deliveries are being made.
NIO, along with Chinese peers BYD Co. and XPeng Inc., is also poised to benefit from strong growth in the adoption of electric vehicles in China, helped by the country’s focus on incentivizing electric-car developers. Beijing wants new-energy vehicles to account for 15% or more of the market by 2025.
Is NIO outpacing the S&P 500?
Only back in January, the analyst team at MyWallSt was discussing NIO stock and its potential, then priced at just $3.51 per share. As none of us are now driving sports cars or living in mansions, you can probably guess that we didn’t invest in NIO, much to our collective disappointment now, but such is the nature of Wall Street.
Getting back to the point, NIO shares have grown roughly 796% year-to-date (YTD), with its stock going for $33.32 per share as of market close on November 2.
This compares to the modest 1.63% growth experienced by the benchmark S&P 500 index in the same period. This is an unfair comparison, as you’d be hard-pressed to find any stock that has experienced such growth. Even its biggest competitor Tesla has ‘only’ risen 365% YTD. Pffft…
Should I buy NIO stock?
Hold your horses there buck, we’re not done yet!
Sure, NIO’s engine is roaring at the moment, but with a valuation of roughly $45 billion, it is now more valuable than Ford, which delivered 17.1 million vehicles in 2019. That should tell you all you need to know about how overpriced it is.
NIO lags on key earnings metrics, while it remains a young and fast-growing company, so it’s no surprise that it is yet to turn a profit. Despite this, in August, NIO easily beat estimates for the second quarter, losing $0.15 per share as revenue soared 140% to $526.4 million. Gross margin reached 8.4%, versus -33.4% a year ago, and -12.2% in Q1. Though profits remain elusive, losses are narrowing.
When NIO reports for Q3, Wall Street analysts see it losing $0.15 per share, versus a loss of $0.33 a year ago, with sales expected to leap 144%. For 2020, Wall Street expects NIO to cut losses by 55% to a loss of $0.69 a share, followed by a further reduction to $0.49 a share in 2021, with revenue expected to almost double in both full-year 2020 and 2021.
It’s risky, and it’s overpriced, but like Tesla, it has a massive runway for growth with its home country, China, being the fastest-growing EV market in the world.
NIO is set to report on its Q3 financials on November 17.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.