In 2020, the stocks of NIO Limited (NYSE: NIO) grew by 1,300%. They have been growing as if there were no coronavirus crisis, and three weeks ago, the growth even sped up.
Today, we will discuss NIO and the reasons for such prominent growth.
First and foremost, note that the stocks of all producers of electric cars are growing. Last week, the stocks of such companies as Kandi Technologies Group, Inc. (NASDAQ: KNDI), Electrameccanica Vehicles Corp. (NASDAQ: SOLO), Arcimoto, Inc. (NASDAQ: FUV), Li Auto (NASDAQ: LI), Nikola (NASDAQ: NKLA), GreenPower Motor Company Inc. (NASDAQ: GP), XPeng Inc. (NYSE: XPEV), etc. also grew. The profitability of all these companies is expressed in two-digit numbers.
In terms of capitalization, the leader of the segments is Tesla. Anyway, its stock price has reached 500 USD, and medium-term investors turn to developing companies: their stock price might be below 50 USD, while the probability to receive a 100% profitability in a short term is much higher than with Tesla.
Though the leader of the sector is Tesla, the catalyst for growth in November became NIO.
Sales in October
On November 2nd, NIO presented the information on the sales of electric cars in October 2020.
By the report, the company sold 5,055 vehicles, which is 100% more than last year. The leading model became an ES6 five-seater, numbers two and three were six- and seven-seaters, premium class 4x4s ES8.
In 2020, the company sold 31,430 electric cars in total, which is 111% more than last year.
The report for the third quarter was scheduler doe November 17th, and the sales of October gave investors an idea of what it would be like, hence, they rushed at NIO stocks, lifting their price from 33 to 54 USD each in two weeks.
The sales statistics of NIO drew the attention of speculators to the market of electric cars. As a result, the stocks of other companies also grew.
The income of Li Auto and Xpeng
As the report date of NIO was approaching, Li Auto and Xpeng poured oil on the flames.
On November 12th, Xpeng presented its report for the third quarter, and the growth of its income was higher than expected. The overall revenue reached 293/1 million USD, which is 342% more than in the same period last year. The income from selling electric cars, compared to the third quarter of 2019, grew by 376% up to 279.6 million USD. The results of the report were again higher than analysts forecast.
The next day, Li Auto also published its quarterly report: its income grew by 28.4%, compared to the previous quarter, and sales – by 31%, exceeding the expectations. A portion of good news augmented agitation in the segment. XPeng stocks grew by 22% during a trading session.
The stocks of Li Auto after the report opened with a gap of 25%, and the preceding quarterly report of XPeng pushed them upwards by 17%.
NIO Limited income
The final of the rally in the segment was the report of NIO.
The losses of the company started shrinking faster than expected. In the third quarter, the losses were about 12 cents per stock against the 15 cents forecast. Compared to the last year, the loss decreased by 64%. The income of the company grew to 666.6 million USD (look who has supported the segment), which is 146% than last year.
In the third quarter, the company sold 12,206 cars, while in the same quarter of 2019, it sold 4,799 electric cars.
NIO managed to increase the margin from selling vehicles from negative 6.8% to 14.5% by decreasing the production costs and purchase prices for certain commodities. The company makes 94% of its income on selling electric cars and only 6% - on extra services and selling accessories. Hence, electric cars generate the main money flow.
The management expects sales of electric cars to reach 16,500-17,000 vehicles in the fourth quarter, and the income – to amount to 948 million USD.
Buy on rumors, sell on facts
This is the principle that worked so well with NIO stocks. Two days before the publication of the report, the stock price started declining. It was obvious that the report would be better than expected, so some speculators decided to take the profit before the publication.
Upon reaching the high of 54.20 USD, the quotations headed downwards and closed at 44.56 USD per stock. On the day of the publication, the stocks were also declining. The agitation of speculators subsided. However, new investors who had no stocks of electric car producers in their portfolios got interested in NIO stocks.
What to do with NIO stocks now and is it worth buying them at the current price?
Even this article demonstrates how fast the interest in electric car producers was growing in November. Agitation was increasing day by day. In such circumstances, stocks become overprices very soon. Speculators leave the securities as soon as they make their profit, volatility drops, and the stocks start correcting. Only then, long-term investors start buying them, if they have not done this before.
I am more than sure that a part of long-term investors has long bought NIO stocks. For the first time, I mentioned NIO as early as March 2019. However, market players are numerous, and you will always find those who would like to invest in the company now. It is very important to get rid of emotions, making your decision.
Competition between NIO and Tesla
The main rival of NIO is Tesla. The size of the latter allows it to decrease the price of their electric cars gradually, making them more affordable for clients.
The management of NIO sees the situation quite clearly, so they suggested their clients paying for the cars only, without the accumulator, and use the latter via leasing. His risk is not going to affect the stock price noticeably in the nearest future.
NIO is significantly inferior to Tesla in terms of processing powers. In the third quarter, Tesla produced 145,000 electric cars, which makes 48,330 vehicles a month. NIO produces just 5,000 cars a month, planning to increase this number to 7,500 vehicles in the nearest future. In such circumstances, Tesla will take up its niche in the market quicker, however, NIO will still be selling its 7,500 cars a month because this is quite a small number for China.
Quarterly reports of NIO look so impressive because the base is so low: Tesla will need to build at least several plants more to double its production, while NIO only needs to launch one more assembly line.
Well, NIO will remain weaker than Tesla but it will go on impressing its investors with good quarterly reports as it is just beginning to grow. This means that the perspective for further growth remains bright.
NIO stocks tech analysis
The 200-days Moving Average promises further growth but the price is high above the line, confirming the overbought state of the stocks.
In such circumstances, it is safer to wait for a correction to the nearest support level at 40 USD. If investors remain excited about the stock, a breakaway of 54.20 USD will signal further growth of the stock.
NIO is a young developing company. It has all chances for further development, hence, the stock price is likely to grow.
If you plan a long-term investment in NIO stocks, the current price is quite good. In this case, take up your position in parts.
If your planned term of investment is under 6 months, wait for a correction and buy on it, because tech analysis shows that the stocks are overbought.
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