It’s been a wild ride for electric vehicle (EV) stocks, and Nio (NYSE:NIO) has been no exception. At a quick glance, the 13% drop in NIO stock for 2021 doesn’t look too bad. However, the stock is down approximately double that since reaching a high of over $60 in February. And without a rally of over 30% over the last 30 days ending June 16, the stock was down 50% from its high.
That’s the definition of a stock going through a bubble. The question for investors is whether the current rally will have legs. Recent analyst reports suggest that will be the case. Demand is likely to remain strong in China, and Nio is beginning to make its European aspirations actionable.
In this article, we’ll look at one of the fascinating companies in the EV sector and let you decide if now is the time to enter, or add to, a position in NIO stock.
More Than an EV Stock?
A recent article in Seeking Alpha made the case that Nio should be analyzed as more than an electric vehicle company. Two of the key catalysts for this assessment are Nio’s Battery-as-a-Service (BaaS) program as well as several patents that support autonomous driving.
In the case of its BaaS program, a partnership with Ford (NYSE:F) is evidence that Nio is finding ways to monetize the service. This may provide the company with an added source of revenue.
The same may be true of its patents which may allow it to license its proprietary technology. One example of this is Nio’s “intelligent cockpit” that is powered by NIO’s artificial intelligence, NOMI.
And, as the Seeking Alpha pointed out, the ability to assemble components of an electric car may take a backseat to the software systems that make up the brains of the vehicle.
Furthermore, having an ability to generate revenue in other ways helps to mask the fact that Nio uses a third party to manufacture its cars. That’s a point that some would say is a weakness of Nio.
Nio is Not Yet Profitable
All of that is well and good. But Nio is not yet profitable and that has to be at least a little concerning to investors. Bulls would point to Tesla (NASDAQ:TSLA) as another example of a company that has a valuation beyond that of a traditional car company. However, Tesla has managed to begin deliver cars and it is firmly entrenched in the United States. Nio is only now starting to get traction outside of its home country.
Furthermore, while Nio’s BaaS service is disrupting the traditional electric charging sector, it’s anyone’s guess as to how long it will remain disruptive. Charging technology is improving. And as a charging network becomes widely available, it may eliminate the primary driver for the company’s battery swap service.
A more pressing concern is the global chip shortage that is causing delays in electric vehicle manufacturing. The chip shortage is projected to last into 2022 so investors are right to expect that Nio may report disappointing delivery numbers for the next several months.
Is It Time to Buy NIO Stock?
From a technical standpoint, NIO stock looks extended. It is trading significantly above both its 50- and 200-day moving averages. And with its relative strength index (RSI) approaching 70, investors may want to wait for a better entry point.
Just two years ago, Nio faced an uncertain future. Now, the company looks to be one of the shining stars in the EV space. However, I would feel better about the stock if the company had more cash on its balance sheet and ultimately, its bottom line. Nio is not there yet and neither is the EV industry.
There’s nothing wrong with believing in NIO as an aspirational stock. But that doesn’t mean you should overpay for it. Right now it may be better to wait for a better entry point. You shouldn’t have to wait long. The stock has a strong support zone between $43.70 and $43.90.
Before you consider NIO, you'll want to hear this.
MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and NIO wasn't on the list.
While NIO currently has a "Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.
View The 5 Stocks Here
Companies Mentioned in This Article
Compare These Stocks
Add These Stocks to My Watchlist