Chinese electric car makerNio(NYSE:NIO) saw its shares appreciate in value spectacularly in 2020. Nio ended the year at $48.38, for an eye-popping 1,080% gain. However, 2021 hasn’t been so rosy for Nio stock.
After climbing to a $62.84 close on Feb. 9, NIO stock has slumped. Now trading below $38, NIO is down 30% from the start of the year, and off its February all-time high by 40%.
Ouch.
The protracted slide has scared off nervous investors, while others see the dip as a golden opportunity to grab shares on the cheap.
Which is it, time to make a move, or time to take a pass on NIO stock? I’m firmly in the former camp. NIO is an ‘A’-rated stock inPortfolio Graderand it’s is a hot company in an even hotter market.
It’s facing challenges at the moment, but those are speed bumps. NIO has also been hit by abroad selloff of EV stocks. I think the big picture shows this dip offers a fantastic buying opportunity for anyone who wants to add EVs to their portfolio.
Here’s why.
Nio Is One of the Largest Chinese EV Makers
Founded in 2014, Nio is one of China’s largest EV makers. It’s established, it has a wide range of premium EVs, including a new sedan to complement its lineup of crossovers and SUVs, and its factory is humming. Several days ago, the company announced itdelivered 7,102 vehicles in the month of April.
That’s a 125.1% increase over deliveries for April, 2020.
Nio also has an offering that other EV makers can’t match. Last August,the company launched Battery as a Service, or BaaS. This service allows Nio owners to pay a monthly lease for their EV’s battery instead of buying it outright. Doing so offers numerous advantages, including a lower EV purchase price, and the ability to upgrade the battery if higher capacity is needed.
In addition, Nio owners who subscribe to BaaS don’t have to worry about whether their home has available EV chargers — a real concern in megacities where many people live in large apartment complexes. Instead, they can drive to a convenient station and swap out their depleted battery for a fully charged one.
China Is The World’s Largest Car Market
Another reason to love Nio? We tend to think of the U.S. when it comes to automobile production and sales. However, China has held the title of world’s largest car market for more than a decade.
In 2020, there were 14.46 million new vehicles sold in the U.S., butChina notched 19.79 million new car sales. In addition, the Chinese auto market has far more runway for growth. In the U.S., there are currently over 800 cars for every 1,000 inhabitants. In China, that number is less than 200 for every 1,000 inhabitants.
China is also an enthusiastic adopter of EVs. In 2020, 1.3 million EVs were sold in the country. Growth was modest at 8% — changing government subsidy programs had a negative effect — but that still represented 42% of global EV sales. In comparison, just 2.4% of vehicles sold in the U.S. last year were EVs.
However, projections have the Chinese auto market returning to growth in 2021, after a year where the pandemic put a damper on the market. A report published in February putsChina on track to see a 50% increase in EV sales in 2021. Nio is going to capture a good chunk of that increase.
That’s going to help push NIO stock out of its current funk.
Some Challenges Still Weigh on NIO
There are some challenges in 2021, of course. And these challenges have been part of the downward pressure on NIO stock. As I mentioned, after big growth last year, EV stocks in general have been in correction territory this year. There are concerns that globalchip shortages will constrain production of EV makers, including Nio. Competition is increasing. There is also the long-term threat that Chinese stocks like Nio may eventuallyface de-listing from American exchanges.
It’s important to be aware of these issues, but I wouldn’t fixate on them. Most are surmountable and the de-listing threat is at least three years off.
The Bottom Line on NIO Stock
Nio is facing some challenges. But the positives far outweigh the negatives in this case. This is a company with huge growth momentum and I expect NIO stock will once again reflect that.
Many analysts agree with me. The 19 investment analysts polled byCNN Moneyhave NIO stock rated as a consensus “Buy” with a $58.98 median price target. That’s around 56% upside — if you make a move now, before NIO starts to recover.