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Nio Stock Technical Analysis
Shares of the China-based electric-car startup are at fresh all-time highs but have been on a wild ride. Nio stock went public at 6 in September 2018, then hit a low of 1.19 in late 2019 on sales and cash woes.
Throughout 2020, shares have rallied as the Chinese EV market rebounded, helping double delivery rates from a year ago. They popped to a fresh high Nov. 2 as October deliveries doubled.
In late August, Nio stock cleared a 15.55 cup-with-handle buy point, according to MarketSmith chart analysis. The breakout came as Wall Street cheered sales momentum as well as improving losses, margins and liquidity. Plans for expansion outside China lifted shares.
Nio stock is now extended, meaning shares are not in buy range. Its relative strength line has bolted higher after falling sharply in 2019. A rising RS line reflects a stock’s outperformance vs. all stocks in the S&P 500. It is the blue line in the chart shown.
Shares earn a superior IBD Composite Rating of 97 out of 99. The rating combines key fundamental and technical metrics in a single score. An unbeatable 99 RS Rating well exceeds the 80 or higher that investors in top growth stocks would want to see.
Nio’s A+ Accumulation/Distribution Rating reflects heavy buying by institutional investors in the past 13 weeks. IPO stock Nio is well traded, with decent institutional backing: Nearly a quarter (23%) of Nio shares are owned by mutual funds: 409 funds owned the EV stock as of September, up from 342 in June.
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 55 out of 99, and an SMR Rating of D, on a scale of A+ to a worst E. The EPS rating reflects a company’s earnings growth vs. other stocks. The SMR Rating measures sales growth, profit margins and return on equity.
In August, Nio handily beat estimates for the second quarter. Nio lost 15 cents a share as revenue leapt 140% to $526.4 million. Gross margin reached 8.4%, vs. -33.4% a year ago and -12.2% in Q1. While earnings remain elusive, losses are narrowing.
Analysts expect Nio to trim losses 55% to 69 cents a share in all of 2020, then reduce losses further to 49 cents a share in 2021. Revenue is seen almost doubling in both full-year 2020 and 2021.
Wall Street Cheers ‘Strong EV Leader’
Nio sales slumped at the start of 2020 due to the coronavirus outbreak, which originated in the Chinese city of Wuhan.
But sales quickly rebounded. In Q2, Nio deliveries more than doubled, jumping 191% year over year. In Q3, Nio deliveries grew 154%. And at the start of Q4 in October, Nio deliveries doubled, the company said Monday. Also in October, Nio achieved a production milestone of 5,000 vehicles in a month for the first time.
Wall Street is growing more bullish as a result. On Oct. 29, Morgan Stanley styled Nio stock a “strong EV leader in the making.” The firm hiked its earnings forecasts and price target on Nio stock, citing strong sales momentum. Earlier in August, the firm saw an improved outlook for Nio earnings and cash flow.
In October, JPMorgan forecast Nio could take a massive 30% slice of the premium EV market. The firm cited, in part, the expected debut of a new affordable electric sedan. Nio currently sells the ES8 and ES6 electric SUVs, and a new EC6 electric crossover.
It’s a stark comeback for the electric-car maker. Nio, the pride of China’s EV industry, was strapped for cash and teetering on bankruptcy in 2019. But after seeing sales crumble and then dealing with coronavirus factory shutdowns, Nio rebounded in a very big way.
Nio Stock, China Electric-Car Outlook
In a recent interview, CEO William Li said Nio should reach annual production capacity of 150,000 units by the end of 2021. Longer term, Nio aims to double output to 300,000 per year. For context, Nio delivered 20,565 electric vehicles in 2019.
Wall Street is optimistic about those targets. “We believe the company can achieve this using existing industry capacity instead of building a greenfield plant given rampant overcapacity in China, which should reduce its capex burden,” Deutsche Bank analyst Edison Yu said Oct. 19.
Analysts are also bullish about overall China EV sales, adding further lift to Nio stock. JPMorgan expects the EV share of the total China car market to quadruple to 20% in 2025 from under 5% in 2019. The costs of producing EVs and traditional vehicles will reach parity by 2023, driven by lower battery costs, the firm says.
Nio reports very strong demand for the new EC6. A robust order backlog means buyers wait around eight weeks to actually get the EV.
As part of its “Battery as a Service” strategy, Nio also runs battery-leasing and battery-swapping services. Essentially, the car and the battery are sold separately. Subscribers to the program can rent the battery for a monthly fee.
A new 100 kWh battery pack option is set to arrive in Q4, increasing range vs. current battery options by about 62 miles to 360 miles. That’s a good sign, since range anxiety is one of the biggest obstacles to EV adoption.
Nio Looks Beyond China
Founded in 2014, Nio emerged on the China auto scene with little experience in the mass manufacturing of electric vehicles. But the EV startup promised a brighter and more joyful future, summed up in its Chinese name Weilai, which means “blue sky coming.”
In June 2018, Nio began deliveries of the ES8, a premium electric SUV and its first volume vehicle. A year later, it started delivering the smaller ES8. In September 2020, Nio began delivering the EC6, seen as a potential rival to the upcoming made-in-China Tesla Model Y.
Nio plans to enter other global markets, starting with Europe, in the second half of 2021. Meanwhile, Tesla plans to start exporting its lower-cost, made-in-China Model 3 cars to European markets in October.
In its latest annual report, filed in May, Nio warned that partnering with third parties on auto manufacturing is risky, given operations outside of its own control. Additionally, Nio warned at length of coronavirus and epidemic risk, noting it has both a service center and vehicle delivery center in Wuhan.
Rival Electric Car Stocks
Nio stock belongs to the auto manufacturers industry group. Surging Tesla stockfueled the group’s rise this year. Auto manufacturing currently ranks No. 2 out of 197 industry groups tracked by IBD. Nio itself ranks No. 2 within this group, behind Tesla and ahead of Ferrari (RACE).
Backers of Nio include Chinese tech giants Tencent (TCEHY) and Baidu (BIDU). And Alibaba (BABA) has invested in local EV rival Xpeng.
Nio, Xpeng Motors, Li Auto and BYD (BYDDF) have all ramped up China sales in recent months. Meanwhile, despite several price cuts, Tesla’s China sales have flattened in the last few months, according to official data.
Is Nio Stock A Buy Now?
From a fundamental perspective, Nio stock is improving after debt and liquidity fears slammed shares last year. Nio is paring losses while delivering huge top-line growth. The outlook for Nio car sales and overall electric car sales in China seems robust, while an expansion in Europe is being closely watched.
Technically, however, Nio stock has run up massively and shares are not currently in a buy zone. Investors should consider waiting for the EV stock to pull back or form a base before starting a position or adding to an existing one. Also, the market is in a correction and investors generally should wait for an uptrend to resume before opening new positions.