NIO: RIDING ON THE EV HYPE

Technicals

We will be looking at the chart (4H) of NIO for possible points of entry in the stock. As we can see that the upward channel has been broken and the price of NIO dipped to the lowest at about $39 which seems to be a strong floor of support for the stock. RSI was also shown to be oversold and it currently still moving sideways. Taking a look at MACD there seems to be divergence against the price even as price went down which reflects the bears weakening.

Our price entry : The stock now is considered to be on sale to us and anything from $39-43 would be a good point of entry for long term investors

Fundamentals

Nio Inc (NYSE: NIO) had a splendid year, with its share price rallying over 1,000%. Its meteoric rise has garnered many attention, from top hedge funds to the average home trader. Today, we will be taking a look at this booming EV company based in China.

Nio was founded in November 2014, just 1 year after global EV leader Tesla and it controls a staggering 23% market share of EV industry in China, where it sold 42,000 vehicles in 2019 with the company projecting nearly 110,000 for 2020. According to EV Sales Blog, China electric car sales were 131,000 in September 2020, up 66% on September 2019. Electric car market share in China for September was 6.3% and 5.2% YTD.

The total Chinese EV market is going to rapidly grow in the coming years due to secular trends and government support. By 2025, the Chinese government is targeting that 25% of car sales will be EVs as part of its plan to reduce pollution. It’s pursuing this target through a combination of subsidies, tax credits, investment, and quotas. According to Barron's, EV penetration in China is still only about 2%, so it has plenty of room to grow, with the Chinese EV sector is the largest new-car market in the world, out-pacing the United States.

China's air pollution is an major and pressing issue to fight. Beijing, the metropolitan capital of China, has been infamous for its haze problem, which often exceeds the acceptance level and can cause serious respiratory issues. Studies have shown that emissions from motorised vehicles contribute to nearly 70% of the city's air pollution and have no signs of dying down due to its population growth, where it has swelled from 11 million to 16 million in the past 7 years.

Nio Price Ratings from analysts throughout the past 6 months

In the coming years, we expect the China government to come up with even more subsidies to encourage, or even implement policies that will deeply favour the EV industry and change the entire consumer dynamics. Known for its aristocratic government structure, reforms such as additional tax for carbon emission vehicle or tax breaks for EV is highly likely.

Diving into fundamentals, Nio reported its Q3 earnings on Nov. 17, where it has beaten estimates. Nio lost 12 cents a share as revenue more than doubled to $666.6 million. Vehicle margin expanded to 14.5% from -6.8% a year ago and 9.7% in Q2. Available cash more than doubled from Q2 to $3.3 billion in Q3. This gave investors confidence coupled with an upgrade from Goldman Sachs propelled its stock price to an all time high of $57.20. Despite the major improvements in numbers and ratios, the path to profitability in the near future is still unlikely.

Nio's stock price have fallen by about 20% following

Seeking Alpha’s poll of 13 analysts shows that, on average, Nio’s revenue is forecast to be $2.21 billion in 2020 and $3.82 billion in 2021. Nio President, Lihong Qin said in an interview that he believe Nio should achieve profitability in the next one to two years with the stellar growth of sales in China and expansion into Europe.

Conclusion:

We are bullish with this stock. With Nio Day and a new vehicle launch scheduled for January as well as a planned expansion into continental Europe later in 2021, Nio’s outlook in the short-term remains bright. However, long-term outlook is neutral as Nio has a long way to profitability. History always repeats, when Nio finally becomes a profitable company, we expect to see a huge rally in share price just like how Tesla did. Long term investors will have to be able to stomach the huge volatility of drastic movements in its stock price.