Is NIO (NYSE:NIO) Stock an EV Company Worth Watching?

Thursday, September 24, 2020 | Sean Sechler
Is NIO (NYSE:NIO) Stock an EV Company Worth Watching?

There are so many advantages associated with Electric Vehicles, it’s only a matter of time before we see widespread adoption of them around the world. With benefits like lower costs, less maintenance, environmental tax credits, and eco-friendliness, it makes sense that there are plenty of investors interested in EV stocks at this time. However, with so many competing companies and several businesses facing controversy, navigating the EV sector can be challenging. That’s why it pays to dive into what makes a company compelling before taking action.

One EV company in China has attracted a lot of attention and has many investors wondering if it’s worth a look. NIO (NYSE:NIO) stock is up over 500% this year and is seeing solid growth as it works towards profitability. Is this a company that can compete with Tesla and grow into a dominant EV company in China or is it fool’s gold? Let’s take a deeper look at NIO below and decide whether or not it should be on investor’s watch lists going forward.

China’s Answer to Tesla

NIO is an interesting company because it operates in the world’s largest automobile market. The China-based company was founded in 2014 and designs, manufactures, and sells smart and connected electric vehicles. NIO is investing in next-generation technology like autonomous driving and artificial intelligence as well. While it’s easy to draw comparisons to leading EV company Tesla (NASDAQ:TSLA), NIO is at a completely different stage in its business cycle. The company is working towards profitability and is seeing strong growth, but it still has a long road ahead. It’s worth noting that NIO has an advantage in its home-country during a time when U.S. companies face risks related to heightened trade tensions between the U.S. and China.

There are currently two premium electric SUVs that the company offers, the ES8 and the ES6. Each vehicle is priced starting at around $51,000. While the Tesla Model 3 is the best selling electric vehicle in China at this time, there’s certainly room for another EV company to succeed. China is the largest automobile market in the world and it appears that the country wants to become the global leader in Electric Vehicles. The country has announced new policies such as extending EV tax breaks and investments in battery charging infrastructure that could accelerate the growth of electric vehicle use. All of this bodes well for NIO, which is why it is a noteworthy company at this time.

Battery Swap Technology

One of the interesting things to note about NIO is that it allows its drivers to swap batteries in 5 minutes and continue driving versus having to wait hours for them to charge. Batteries are one of the big limitations of electric vehicles at this time, as many drivers still prefer the convenience of going to the gas station versus finding a battery charging station and waiting. Nio is handling the issue by launching a unique Battery as a Service (BaaS) subscription model that allows owners to sign up for different battery sizes and get a fresh battery pack installed when needed.

NIO sells some of its vehicles without a battery at a discount, which can knock about $10,000 off the price of the purchase. Drivers can then have a battery installed in their vehicle in minutes at one of NIO’s Power Swap stations. While most EV companies are working on improving the lifespan of batteries and how quickly they charge, NIO’s battery swap technology offers an interesting solution to one of the biggest downsides of electric vehicles.   

Strong Q2 Numbers

While the COVID-19 crisis hit NIO’s sales hard in the first half of the year and the company was dealing with liquidity issues, it appears there has been a strong turnaround when you take a look at the company’s Q2 numbers. Revenues grew by 146% year-over-year in Q2 to $526.4 million and the company narrowed its net loss by 64.2% year-over-year. The company’s balance sheet is looking a lot better now and NIO recently took advantage of a strong rally in the stock by issuing a $1.7 billion secondary stock offering.

Perhaps the most impressive figure from the company’s Q2 numbers was the 120% year-over-year increase in vehicle deliveries, which crossed the 10,000 per quarter mark for the first time in the company’s history. NIO reported 3,965 deliveries in August, which was a record month for the company and a sign that vehicle sales are rebounding quickly in China. It will be interesting to see how things play out for NIO during the remainder of the year from an earnings and sales standpoint.

Final Thoughts

Although there is a lot of competition in the EV space, NIO is a company that is worth watching going forward. The company reported impressive Q2 earnings and appears to have some backing from the Chinese government that could lead to more upside for the stock. Keep NIO on your watch list and consider adding shares if you believe that the company has a chance to become a key player in the Chinese EV market.

Should you invest $1,000 in NIO right now?

Before you consider NIO, you'll want to hear this.

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
NIO (NIO)1.8$37.51flatN/A-44.13Buy$66.00
Tesla (TSLA)2.4$759.49flatN/A395.57Hold$614.02
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