Yesterday, NIO held the widely awaited NIO day. The stock is down over 38% for the year and is the worst-performing major EV (electric vehicle) stock. What’s the outlook for NIO stock and is the dip a good buying opportunity?
NIO’s 2021 underperformance looks even troublesome looking at the price action of other EV names. While all the EV stocks have whipsawed this year, most are trading with YTD gains. Tesla’s market cap recently crossed above $1 trillion. While the stock has since come down, it is still in the green for the year.
Key takeaways from NIO day
As expected, NIO announced the ET5 sedan at the event. It would be a budget model from the company and would have a starting price of 328,000 yuan for the 75 kWh battery option. If the buyer opts for BaaS (battery as a service) where they can buy the car without the battery, the price would fall to 258,000. In that case, the buyer would have to pay a monthly subscription fee of 980 yuan. Notably, BaaS has been a key competitive strength for NIO as it helps in reducing the initial car cost. For electric cars, the battery is the most important cost element. Meanwhile, the model would come with a range of 550 kilometres.
The 100-kWh battery would have a range of 700 kilometres. The model would cost 386,000 yuan. In case, the buyer opts for a BaaS, the price would fall to 258,000 yuan with a monthly subscription fee of 1,480 yuan.
NIO has already started operations in Norway. Next year, it plans to sell its cars in the Netherlands, Sweden, Denmark, and Germany. The company plans to be present in more than 25 countries by the middle of this decade. Notably, Europe could be the new battleground for EV companies.
Volkswagen dislodged Tesla as the EV market leader in Europe and is now working to become the global EV market leader by 2025. Tesla is also setting up a new plant in Berlin which would help it better compete in the market. Currently, Tesla ships cars made in its Freemont and Berlin plans to buyers globally. However, local manufacturing helps brings efficiencies and also lower the car price.
NIO also announced a partnership with Nreal, a Chinese augmented reality startup. The company would design custom augmented reality (AR) glasses for NIO cars which would help reduce the requirement of in-car screens.
NIO has partnered with JAC Motors
NIO has partnered with the state-owned JAC Motors to produce its cars. Here it is worth noting that electric vehicle companies have taken a divergent approach to production. On one hand, we have companies like Tesla, Rivian, and Lucid Motors which are setting up their own production plants. Tesla already produces cars at two of its Gigafactories in Freemont and Shanghai while another two of these are coming up in Berlin and Texas.
Analysts on NIO stock
Wall Street analysts are quite bullish on NIO stock. Of the nine analysts polled by TipRanks, eight have a buy rating while one has a hold rating. The stock has an average target price of $60.67 which is a premium of over 102% over current prices. Meanwhile, the stock has disappointed in 2021 and the price action has lagged Tesla as well as other EV stocks.
Wall Street analysts on NIO stock
Morgan Stanley, however, believes that NIO stock is set to deliver good returns in 2022. It said, “The stock has lagged peers YTD as growth stalled on the component crunch, plant restructuring and no new products. However, it’s time to turn the page — a superior ecosystem, broadening customer and distinct branding make the setup unique and favorable for NIO to gather strength into 2022.”
In October, Goldman Sachs had also upgraded NIO to a buy and sounded upbeat on its ET7 sedan. The company would begin the deliveries of the model towards the end of the first quarter of 2022. It would be the first sedan model from the company and all its models are SUVs.
Deutsche Bank is also bullish
Deutsche Bank is also bullish on the stock and has a $70 target price. The firm believes that NIO could be the next iconic auto brand. Last year, Deutsche analysts said, “We continue to see compelling evidence that NIO is increasingly perceived by customers as a high-quality premium brand with best-in-class technology and service.”
They added, “As BEV adoption increases and word of mouth spreads, we believe Nio can take material share in the premium segment as consumers begin to understand the value proposition and quality of its products and services,
Meanwhile, Jim Cramer is bearish on NIO stock and called the stock “risky.” That said, NIO stock should have a much better time in 2022. The chip supply situation should get a lot better while the production ramp-up would help the company scale up its deliveries. After the massive underperformance, NIO’s valuations now look quite reasonable and the stock should bounce back next year.
That said, the company faces the risk of delisting in the US, like many other Chinese companies. NIO stock is listed as a VIE (variable interest entity) on the US markets and both the US and Chines regulators have been apprehensive of the structure where the US investors do not own the company directly but through a shell company usually listed in a tax haven. After the Didi delisting drama, several US investors have been wary of investing in Chinese stocks.
How to trade in NIO stock
You can invest in EV stocks like NIO through any of the reputed online stockbrokers. Alternatively, if you wish to trade derivatives, we also have reviewed a list of derivative brokers you can consider.
An alternative approach to investing in the green energy ecosystem could be to invest in ETFs that invest in clean energy companies like NIO.
Through a clean energy ETF, you can diversify your risks across many companies instead of just investing in a few companies. While this may mean that you might miss out on “home runs” you would also not end up owning the worst-performing stocks in your portfolio.
By investing in an ETF, one gets returns that are linked to the underlying index after accounting for the fees and other transaction costs. There is also a guide on how to trade in ETFs