NIO Stock Analysis: Should You Buy in 2021?
Chinese electric vehicle (EV) company NIO (NYSE: NIO) is a new player in the auto market. The company was founded in 2014 and has made quite a bit of noise in the EV market. NIO does not manufacture its own vehicles; instead, it partners with a state-owned auto manufacturer.
There are plenty of reasons to be excited about NIO stock. The company behind it makes electric vehicles, and countries around the world are rallying in support of EVs. The European Union wants to have at least 30 million electric vehicles on its roads by 2030. And more recently, the Biden administration in the US has set a lofty goal of 50% EV sales by 2030.
The backdrop for these ambitious goals is China. It’s become the world leader in EV manufacturing. Statista projects China will produce over 13 million electric vehicles between 2018 and 2023. That is nearly triple the US projection. Even Germany, number two in the projection, is expected to produce 4.4 million EVs.
All signs point to a rapidly expanding pie of which companies like NIO can claim a significant slice. Of course, potential growth in the market doesn’t guarantee any given company will grow, or its share price, for that matter. Thus, we’ll take a look at NIO stock and its outlook going forward.
NIO Stock Performance Outlook
The performance for NIO stock is a bit of a mixed bag. Yahoo! Finance, for example, is bearish on the stock for both its short- and mid-term outlooks. Overall, it has a bearish outlook for the EV company. And if you’re looking for other EV stocks, check out that link.
Meanwhile, all six of the analysts who provided input for TipRanks rate it as a strong buy. The site gives an average price target of $64.50 for July 2022, which is a 41% increase over the last price. It’s worth noting that the current stock price is much higher than it was last year. The company went public in September 2018 and had a price under $10 until 2020. The price rose sharply beginning in mid-2020; it isn’t nearly as good a value as it used to be.
Overall, the site gives NIO stock a “neutral” rating using its proprietary Smart Score metric despite its analysts being bullish on it. Bloggers, too, are bullish on it, and hedge fund activity is up. However, its technicals are negative, and its return on equity is -89%.
Quarterly Financials
For the most part, NIO’s quarterly financials look strong. During the quarter ending March 2021, its revenue was ¥7.98 billion, which was a 482% increase. While that is a huge increase in revenue, the company’s net loss was ¥4.87 billion.
In terms of cash, NIO had ¥47 billion cash and cash equivalents, which gives it more than enough to manage debt payments and expand operations. NIO has also landed several big investors, with more than ¥25 billion in 2020. The Chinese government, too, has offered ¥7 billion to the company. This is a good sign for a company that is growing at a rapid pace.
Investor Sentiment
Yahoo! Finance shows a bullish sentiment in its chart event, and TipRanks analysts consider NIO stock a strong buy. However, TipRanks shows that its investors have a “very negative” sentiment on NIO stock. The majority of the members of that community have sold shares of NIO stock rather than buying; the sector average slightly favors buying.
While NIO’s financials are a mixed bag, there is more that has some investors worried lately. In particular, the actions of the Chinese government have given some people cold feet. Earlier in the summer, the country took down apps and halted IPOs. For China’s part, it says the actions are due to concerns over the collecting of personal data.
NIO also has a manufacturing agreement with the state-owned car manufacturer. That entity is called Jianghuai Automobile Group (SHA: JAC). Several NIO vehicles are manufactured by JAC, including its ES8, ES6 and EC6. NIO also has a joint partnership with JAC and Jianglai Advanced Manufacturing Technology, holding a 49% equity interest.
Given that a state-owned vehicle manufacturer produces NIO’s battery electric vehicles (BEVs), it seems unlikely the Chinese government would go after NIO directly. Nevertheless, the issues in the Chinese stock market have been causing concern for some investors.
Should You Buy NIO Stock?
There are some encouraging signs for NIO, but it is a mixed bag, as mentioned earlier. Its cash on hand and revenue have both improved, but it is still losing money overall. It also has a negative return on equity.
The electric vehicle company also faces increasing competition from other Chinese EV manufacturers. Build Your Dreams, also known as BYD (OTC: BYDDF) is the largest Chinese EV seller. It sold 131,000 EVs in 2020 compared to NIO’s 44,000 units. And there are still more players entering the EV market in China. These include EV startups XPeng (NYSE: XPEV) and Li Auto (Nasdaq: LI).
Of course, the supply chain issues that have plagued the entire auto industry are also a problem for NIO. While that issue should resolve itself eventually, it is something to keep in mind.
Remember that TipRanks forecasts a 41% increase in the stock price over the next year. But whether you should buy NIO stock depends upon how much you think at play right now could derail its growth. Most of its financials are moving in the right direction and the EV market has a lot of room to grow. However, that inevitably means there will be more competition in the years to come.
If you’re looking for even more opportunities, check out these top EV charging stocks. You can also sign up for Profit Trends below. It’s a free e-letter that’s packed with investing trends, tips and tricks.
About Bob Haegele
Bob Haegele is a personal finance writer who specializes in investing and planning for retirement. His hefty student loan burden inspired him to pay off his loans, and now he’s helping others get their finances in order. When he’s not writing, he enjoys travel and live music.