Nio Stock Could Pull Back To $50 Before Surging To $70 Long-Term

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Nio (NYSE:NIO) stock showed record-breaking performance over the past year, returning more than 1,100%. Put another way, $1,000 invested in NIO stock in late January 2020 would now be more than $12,000.

Source: xiaorui / Shutterstock.com

On Wall Street, 2020 was the year of electric vehicle (EV) and alternative energy stocks. According to recent metrics, “Global Plug-in Vehicle Sales Reached over 3,2 Million in 2020… [and] Germany [became] the 2nd largest EV Market after China.” At the same time in China, “EV sales rose 12% last year to 1.34 million vehicles.”

Nio shares were able to ride the trend and capitalize on investors’ love for EVs. It saw a dip in mid-March 2020 as rumors over a potential bankruptcy circulated. But NIO stock reached a record price of $66.99, on Jan. 11, 2021. Now it is hovering at $57.

Source: Stockcharts.com

As earnings season continues, investors wonder if they can expect new all-time highs in NIO shares. Meanwhile, many analysts debate whether the EV space has become crowded and overbought for the short-run. Others question valuation levels of these businesses.

In the coming weeks, I expect volatility with a downward bias in many darlings of the Street, including Nio stock. Therefore, if you are not yet a shareholder, you could consider investing after a possible decline toward $50.

How Q3 Earnings Came Out

Shanghai, China-based Nio is one of the early comers in China’s premium electric vehicle market. It was founded in China and has regularly been touted as the Tesla (NASDAQ:TSLA) of China.

Nio’s initial backers were Baidu (NASDAQ:BIDU), Tencent (OTCMKTS:TCEHY) and Xiaomi Corp as well as the Singapore Government’s sovereign wealth fund, Temasek Holdings.

In September, 2018, Nio stock went public in the U.S. as an American Depositary Receipt (ADR) at an opening price of $6. Since then it has been volatile ride for shareholders. However, as consumers’ and investors’ attention turned to EVs in 2020, Nio started making headlines. Over the past year, the shares have outperformed Tesla stock, which returned over 650%.

Nio announced Q3 earnings results in mid-November. Total revenues were 4,526.0 million RMB (or $666.6 million), an increase of 146.4% year-over-year (YoY). Net loss was 1,047.0 million RMB (or $154.2 million), a decrease of 58.5% YoY.

CEO William Bin Li said, “We achieved a new record-high quarterly deliveries of 12,206 ES8s, ES6s and EC6s in total in the third quarter of 2020, followed by the best-ever monthly deliveries of 5,055 vehicles in October…We expect to deliver 16,500 to 17,000 vehicles in the coming fourth quarter.”

NIO’s CFO Steven Wei Feng added, “Additionally, we achieved positive cash flow from operating activities for the second sequential quarter.”

On January 3, Nio gave a full-year 2020 delivery update. As of December 31, 2020, Nio reached a cumulative delivery of 75,641 vehicles, of which 43,728 were delivered in 2020.

Since the release of results, Nio stock has returned around 30%. Put another way, a substantial amount of good news might already be factored into the shares.

The Bottom Line On Nio Stock

Currently, “in absolute terms, China remains the world’s largest EV market, with 2.3 million electric vehicles in active use. To put that into perspective, that’s nearly half (45%) of the global stock of EVs. Europe and the US are relatively far behind with 1.2 and 1.1 million EVs respectively.”

Given the growth of EVs, especially in China, NIO’s bull run may be only the beginning. 2020 saw Nio stock establish itself with a credible story as an EV brand. But this road might be choppy and long. Also, from a technical standpoint the shares look overbought and ready for a pullback.

NIO stock has support first around $50 and then $40. So a drop to or below $50 could signal a better level to invest in the promising future of EV’s, and especially the Chinese automakers.

Those who already own Nio stock may consider hedging their positions with monthly at-the-money covered calls. By adapting such a strategy, investors would benefit from a potential rally and have some protection from any profit-taking.

Finally, if you do not want to commit full capital to NIO stock, you might also consider ETFs that focus on EVs. Examples include the Global X Autonomous & Electric Vehicles ETF (NASDAQ:DRIV), the SPDR S&P Kensho Smart Mobility ETF (NYSEARCA:HAIL), and the iShares Self-Driving EV and Tech ETF (NYSEARCA:IDRV).

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.