Why Is NIO Stock Rising?

Tesla’s biggest competitor in the all-important Chinese market received a glowing endorsement from JPMorgan Chase, sending shares soaring on Wednesday

Oct. 15, 2020

Shares in NIO (NYSE: NIO) rose 22.57% on Wednesday to help the company close at its highest-ever stock price of $26.50 per share. The welcome bump comes after analysts at JPMorgan Chase (NYSE: JPM)  upgraded the stock to ‘buy’ and said that the Shanghai-based electric-vehicle maker is set to be the “long-term winner” in China’s luxury electric-vehicle market.

What does this mean for NIO?

NIO now has a price target of $40, almost triple the $14 that it previously held, while yesterday’s performance was also NIO’s largest-ever single-day jump. 

But why the sudden upgrade?

“In China’s smart EV market, we expect Nio to be a long term winner in the premium space among Chinese brands vs. XPEV, leading the mass market, while BYD Co. should likely see strong EV demand with rising external battery sales from 2022,” JPMorgan analysts’ stated in a note.

China is the fastest growing and largest electric vehicle market in the world right now, and although rival Tesla (NASDAQ: TSLA) is experiencing significant growth in the region, helped by its Shanghai Gigafactory, analysts believe that this will not hinder NIO’s growth. With EV penetration in China set to quadruple by 2025 to 20% of the overall vehicle market — up from less than 5% in 2019 — Tesla’s success will not be a “winner takes all” situation but instead, a “rising tides lift all boats” phenomenon.

Should Nio continue to benefit from the path paved by the much larger Tesla, it is expected to gain up to 30% of China’s EV market share, which could reach up to 334,000 units by 2025. 

However, to reach this level of production Nio still has a long way to go, having delivered 10,331 in Q2, 2020 versus Tesla’s average of three times that.

What about Tesla?

Tesla has some hot news today too, as its shares rose 3.28% on Wednesday following a series of tweets from CEO Elon Musk announcing a Model S price cut, the second this week. The company’s most successful product will be cut by a further 3.5%, bringing its total price down to  — wait for it — $69,420… 

The announcement comes after one of Tesla’s competitors, Lucid Motors, said that their luxury electric sedan, the Lucid Air, would start at $77,400, which could be reduced to $69,900 with federal tax cuts.

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