It’s been a bumpy road for shares in Chinese EV maker NIO (NYSE:NIO) since we last visited the stock, with sharp increases thanks to broker upgrades and some pressure on fears of overvaluation. But we expect strong company results and market potential to shore up further rises.
In October, NIO’s ADRs had already smashed through brokers’ $18 target price to reach a dizzying high of $28. Since then, JP Morgan, which had just raised its target price to $40, raised it to $46 in early November, citing rich EV potential in China.
Not everyone was convinced. Renowned short-seller Citron, previously bullish on NIO, issued a target price of $25. Citron said NIO would suffer increased pressure from rival Tesla (NASDAQ: TSLA), which it expected to cut the price of its Model Y, a director competitor of NIO’s ES6 SUV.
On this note in mid-November, shares tanked 20 percent only for them to bounce back off the back of strong third-quarter results, soaring to the current high of $55.38, a year-to-date increase of 1388 percent.
JP Morgan upped its target price again to $50 and Goldman Sachs, one of the few bears on the stock, upgraded to ‘neutral’ from ‘sell’ and raised its target price to $56, prompting a further rally.
Even a warning from German semi-conductor maker Bosch (NSE: BOSCHLTD) that it could not keep pace with EV makers’ demands left NIO untouched while rivals Volkswagen and Continental tumbled. NIO shares rose after the company said it was prepared “for the time being” for this shortfall.
NIO results and achievable ambitions will fuel share price
The fundamentals of course must back up such a meteoric spike, but what’s not to like in NIO’s figures? Deliveries have doubled year-on-year for eight consecutive months. NIO says it expects to reach 7,500 units in January, up from November’s 5291.
In the third quarter, NIO, which only in March got a local government bail-out, showed a strong balance sheet, a dramatic 53.5 percent year-on-year narrowing of its losses, and a vehicle margin of 14.5 percent versus -6.8 percent in the same period last year.
CEO, William Li, said: “Our continuous improvement in operational efficiency, cash flow, and balance sheet has laid a solid foundation for our sustainable growth and decisive investments in technologies.”
That’s not all he had to say. In a conference call with journalists, Li announced aggressive plans to take on Tesla’s Model 3 head-to-head, saying NIO was about to launch its first sedan and that another is in the works.
NIO battery announcement
If Citron is still scared about NIO quaking in the battle against its established rival, one can also look at the recent battery announcement. In early November, NIO launched a 100 kWh battery with heavy discounts for upgrades. Goldmans cited this as a reason for its upgrade.
What’s more, Li’s ambitions, don’t even need to be that aggressive. Analysts at JP Morgan said Tesla’s impact will not make China a “winner takes all” market, but one where “a rising tide lifts all boats”.
And one last point. While we earlier stressed that Nio has plenty of potential in its enormous backyard, Li has also announced plans to enter Europe, also a fastest growing region for EVs, in the second half of 2021. All of this looks doable with its latest results.
Shares in NIO closed at $44.01 on December 9.