NIO (NYSE: NIO) stock has just closed at $35.21, nearly 50% down from its all-time high in January ($66.99). But I am not just holding… I am buying more!
Shares of NIO fell after it reported a bigger than expected loss in its Q4 earnings, but also record revenues (over $1 billion). It has also been dragged down by the broader sell-off of growth and technology stocks. However, I think at these levels it is a bargain.
NIO stock keeps breaking targets
NIO said its sales in the Q1 of 2021 would reach 20,000, which would be more than five times the amount it sold during the same period of 2020. In the first two months of 2021, its combined sales totalled over 12,000 vehicles. January car deliveries, for example, were 352% up year on year and were its tenth month of double-digit growth.
EV market share
China is going to be the major electric vehicle (EV) consumer this decade. According to a report by Deloitte, China will hold 49% of the EV market share worldwide by 2030. And in 2021 Chinese auto sales are expected to grow 4% that’s 1.2 million cars. The Chinese government supports NIO, which is likely to boost its efforts and help retain its domestic market share.
I would be happy with NIO just trying to take claim as China’s number one EV company but it has stated it plans to enter the European market later this year, and a Deutsche Bank report in February showed that the company had posted job listings relating to its ambitions to grow in the US market.
Shanghai Securities News said recently “Don’t be surprised to see NIO at Sinopec’s gas stations in the future, the partnership between the two is approaching!”. This could be a game-changer for NIO. The company uses a battery swap model compared to competitors where customers can pay a monthly fee. This works where customers ‘loan’ a battery, which they swap at any NIO station, therefore not having to deal with charge time and no upfront cost for the battery. If NIO and Sinopec were able to reach an agreement on allowing NIO to operate this service at some of its 30,000 stations, this could be very positive for NIO’s expansion.
Recent analyst coverage
Deutsche Bank analyst Edison Yu said that NIO’s revenue in Q4 were largely in line with expectations and its guidance for the first quarter was impressive, while sales could start overseas during the year.
The team raised its full-year sales estimate for NIO by 6,000 units to 96,000 units. They also reiterated their $70 price target on NIO, and see the recent stock weakness as a buying opportunity.
Could it fall further?
In the last year, NIO stock has had overall an incredible run rising over 1000%. Therefore it could be argued that this sell-off recently isn’t overdone, and actually quite small compared to its rise over the last year.
Also, a big risk to NIO isn’t just Tesla but the challenge from established car makers, such as Mercedes and VW. These two giants have both vowed and set aside billions of dollars to spend on its EV offerings over the next few years. They benefit from already being established in all geographical markets that NIO hopes to enter.
I bought NIO originally for the long term but with the recent sell-off, I think in the short term there is great potential for capital growth. While the levels stay sub $45, I will keep loading up!
Joseph Clark owns shares in NIO. The Motley Fool UK has no position in any company mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.