After receiving an analyst upgrade on Tuesday, Chinese electric vehicle-maker and Tesla pure-play rival NIO saw its share price jump to an all-time record
Aug. 26, 2020
Shares in NIO (NYSE: NIO) shot up a whopping 19.17% on Tuesday to close at $17.84 per share — an all-time high for the Chinese EV manufacturer. Shares in NIO have soared just shy of 380% in 2020 alone, which is more than the 370% achieved by Wall Street renegade and the very company it is competing with, Tesla (NASDAQ: TSLA).
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Why did NIO’s stock jump?
The frantic wave of optimism and cult-like adoration of the electric-vehicle industry seems to have swept NIO up in its embrace, as a lukewarm upgrade from analysts was enough of a catalyst to cause Tuesday’s major leap.
Long-time NIO bear and UBS analyst Paul Gong finally upgraded the stock from ‘Sell’ to ‘Hold’; hardly a glowing endorsement of a business that posted losses of $164.2 million in Q2. However, if we look closely at the numbers behind the upgrade, it actually represents a whopping 1,500% on his price target — from $1 per share to $16.
“Fundamentals improved, but what’s priced in?” Gong stated in his upgrade report. He went on to state that the upgrade was related to the rebounding EV market in its domestic China and a recent $1 billion investment from China entities.
Who are NIO’s chief competitors?
We have already mentioned Tesla, but another EV upstart that is comparable in size to NIO is Nikola (NASDAQ: NKLA). Whereas Tesla and NIO focus on cars, Nikola is setting out to revolutionize the $700 billion U.S. trucking industry. Nikola was also handed a ‘Hold’ rating by analysts on Tuesday which sent shares up 1.3%, bringing 2020’s total gains to 279%.
The big problem with Nikola is the fact that it has yet to deliver a single vehicle or generate any revenue whatsoever. There are several reservation options but as of yet, there is no date on when it will actually begin shipping trucks. For now, it is certainly not in the same league as NIO.
Is NIO stock a buy?
NIO stock is trading at roughly five times estimated 2021 sales, not dissimilar to Tesla. However, it is still not profitable. Tesla is roughly 18 times larger based on value, and has a sizeable presence in NIO’s home market of China, just last year opening its all-important Shanghai Gigafactory.
That said, vehicle sales did increase 146.5% year-over-year in Q2, with total revenue also growing an impressive 171% on Q1 2020. Considering that Tesla only just became annually profitable, it is not a stretch to concede that NIO could be on a similar growth trajectory. 2020 appears to be the year that the electric vehicle market transitions from niche to mainstream. With the market projected to reach 26.95 million units by 2030 from an estimated 3,26 million units in 2019, at a CAGR of 21.1% there’s plenty of growth potential.
So far, the pure-play moat has worked well for Tesla versus the likes of Ford and Nissan, so if you have a taste for long-term growth and risk, NIO might be a stock for you.
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