|NIO.. $49.11 23Feb|
Is Nio Stock A Buy As Earnings Loom For China EV Leader?
Nio Stock Technical Analysis
"Shares triggered a sell signal Feb. 18, falling more than 8% from a 57.30 buy point first cleared on Jan. 8, according to
MarketSmith chart analysis. On Feb. 22, Nio stock closed below the 50-day line for the first time in over 10 months,
flashing a decisive sell signal. Nio extended losses Feb. 23, as EV stocks broadly tumbled with Tesla.
The relative strength line for Nio stock rose sharply for most of 2020 and at the start of 2021. The RS line has now fallen
with the EV stock to a two-month low. A rising RS line means a stock is outperforming the S&P 500 index. It is the blue line
in the chart shown.
Nio stock went public at 6 in September 2018. It hit a low of 1.19 in late 2019 on sales and cash woes. The company staged
a strong rebound in 2020 along with China EV sales.
Shares earn a superior IBD Composite Rating of 89 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 Accumulation/Distribution Rating of A+ reflects heavy buying by institutional investors over the past 13 weeks. Plus,
the stock's recent decline came in low volume, which actually helps its A/D rating. Nio is well traded, with decent institutional
backing: 668 funds owned shares as of December, up 23% from September. In fact, Nio shows eight quarters of rising
fund ownership, according to the IBD Stock Checkup tool.
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 52 out of 99, and an SMR Rating of D, on a scale of A+ to a worst E. The EPS rating compares
a company's earnings growth vs. other companies. The SMR Rating measures sales growth, profit margins and return on equity.
On Nov. 17, Nio beat estimates for the third quarter. Nio lost 12 cents a share as revenue more than doubled. Quarter over
quarter, Nio saw vehicle margin expand and cash more than double. While earnings remain elusive, losses are narrowing.
Nio reports for Q4 and full-year 2020 March 1. Analysts expect it to pare losses to 41 cents per share in all of 2021 from 62 cents
in 2020, as revenue swells 97% to $4.89 billion, according to Zacks Investment Research.
One thing to watch: the impact of the global chip shortage, which has hit already Volkswagen ( VWAGY) production in China as well
as General Motors ( GM) and Ford ( F) here in the U.S.
Four analysts on Wall Street rate Nio stock a buy, five have a hold and none has a sell, per Zacks.
China EV Sales, Competition Grow
In the first quarter of 2020, Nio's sales slumped as the coronavirus outbreak in China kept buyers away. But sales quickly
rebounded, more than doubling for the full year to 43,728 vehicles.
The momentum continues early in 2021. In January, Nio's sales quadrupled year over year while overall China EV sales
more than tripled. Fellow China EV startups Li Auto ( LI) and Xpeng ( XPEV) are also seeing huge sales gains in the local market.
While EV sales remained strong for Nio and its peers at the start of 2021, competition is intensifying. As a result, Nio stock and
China EV stocks have come under pressure, according to Deutsche Bank analysts.
In January, Tesla cut the price of its made-in-China Model Y, a rival to Nio's new EC6 electric crossover. Also, Ford ( F) said
it will make the Mustang Mach-E electric crossover in China for consumers there. Plus, Chinese auto giant Geely and tech
giant Baidu agreed to jointly build EVs.
Meanwhile, China's BYD ( BYDFF) has made a big luxury push with the Han electric sedan. BYD, backed by Berkshire Hathaway
( BKRB) chief Warren Buffett, is one of the world's biggest EV and battery makers.
Despite rising competition, "in the endgame, we continue to believe NIO and XPEV will emerge as winners," Deutsche Bank's
Edison Yu and Emmanuel Rosner said Feb. 2. On Feb. 9, the analysts shared that a recent LinkedIn job posting indicates Nio's is
looking for a path to enter the U.S. market, though that could be several years away.
Nio's in the midst of a big manufacturing expansion in China, and looking to launch in Europe later this year. Tesla's also
looking to expand in the European market, which overtook China in EV sales last year.
Globally, Tesla continues to hold a formidable lead in EV sales, but Chinese EV startups are narrowing the gap. In January,
Nio and Xpeng combined sold 13,240 EVs in China vs. 15,484 for Tesla.
Investing in Chinese companies brings on considerable risk of regulatory uncertainty. China slashed EV subsidies by 20%
at the start of 2021, a move that could affect Nio. While the government is trying to wean consumers off subsidies that
juice sales, earlier cuts slowed EV purchases.
Backers of Nio include Chinese tech giants Tencent ( TCEHY) and Baidu ( BIDU). And Alibaba ( BABA) invested in Xpeng.
Outlook For Nio, EV Stocks
As the EV battle heats up, China's Nio, Li Auto and Xpeng are expanding operations to fend off Tesla on home turf.
Nio CEO William Li aims to increase EV production capacity to 150,000 units in 2021. He's looking to double that in the long term,
or nearly three times current capacity, according to Deutsche Bank.
Along with Nio earnings March 1, the EV maker will likely release February sales figures. Look for any updated Nio delivery target.
Analysts are bullish about both China EV sales and global EV sales, adding further lift to Nio stock.
In 2021, EV sales are expected to rise more than 30% to 1.8 million units in China, according to the China Association of Automobile
Manufacturers. Globally, EV sales are expected to rise 70% in 2021, according to IHS Markit.
Growth drivers for Nio include the new EC6 electric crossover and the ET7, a highly autonomous electric sedan set to arrive in
early 2022. The ET7 could be the first EV to offer a solid-state battery — and 600 miles of range. Meanwhile, Nio's putting
battery-swapping technology at the heart of its business model.
In 2020, Nio launched a subscription plan for batteries. Basically, the car and the battery are sold separately. Users can
buy Nio EVs without batteries for a lower price and "rent" batteries for a monthly fee. They also have option to swap car batteries
depending on their needs.
Those moves reflect a remarkable journey. Founded in 2014, Nio had little experience in vehicle manufacturing when it came on the
scene. But it promised a bright future. Its Chinese name, Weilai, means "blue sky coming."
Unlike Tesla, Nio does not manufacture itself. It partners with Jianghuai Automobile Group to build its luxury electric SUVs.
Rival Electric Car Stocks
Nio stock belongs to the auto manufacturers industry group. Surging Tesla shares fueled the group's rise. Auto manufacturing ranks
No. 44 out of 197 industry groups tracked by IBD, down from No. 1 not long ago as investors warmed up to electric-car stocks.
Several new EV stocks emerged in 2020, in Tesla's wake. Those stocks include Nikola ( NKLA), Workhorse Group ( WKHS) and
Hyliion ( HYLN), as well as China's Xpeng Motors and Li Auto.
In addition, several legacy automakers plan a transition to electric vehicles. GM, Ford and Volkswagen have big plans for EV production
and sales in China. Even Italian supercar maker Ferrari ( RACE) eyes a transition to hybrid-electric mobility.
At some point, soaring output of electric cars could outpace overall demand, squeezing sales and prices. For EV stocks, supplies
of batteries and battery metals are another issue. Rising costs for battery materials could stall the sharp drop in battery prices
in recent years.
Is Nio Stock A Buy Now?
From a fundamental perspective, Nio's financial condition is improving after debt and liquidity fears slammed shares. Nio is
paring losses while delivering huge top-line growth.
The outlook for Nio's sales and overall EV sales seems robust. After robust sales in China, Nio's planned expansion in Europe
promises more runway for growth.
Major Wall Street firms also view its battery innovations positively. Similar to Tesla and China's BYD, Nio may become a battery
play as much as an EV stock. But the EV wars are heating up, as legacy auto and tech giants ramp up or get into the game.
From a technical perspective, the white-hot China EV stock has failed a breakout past a 57.30 buy point. It's time to sell Nio.
Bottom line: Nio stock is not a buy right now. Investors could look for it to retake the 10-week line or wait for a new base to form.