NIO Stock Is Gearing Up for a Great Year With Many Near-Term Catalysts
InvestorPlace - Stock Market News, Stock Advice & Trading Tips Among many EV hopefuls, NIO stock stands apart due to robust earnings, an excellent outlook and a plethora of new...
Nio (NYSE:NIO) had an incredible 2021, posting record-high deliveries. Despite its stellar performance, NIO stock has had a forgettable year, losing 45% in the last three months. It has taken a hammering in line with the recent correction in the tech sector. After a momentous run at the market, NIO stock has taken a much-needed pause and is as attractive as ever.
The bears have been quick to pounce on the apparent slowdown in the company's performance. However, the reality is that Nio is looking to revamp its production facilities to prepare for the massive growth in demand for its existing and upcoming cars.
In addition, it seems like Nio is beginning to explore the opportunity of launching a smartphone product specifically designed for car users. In the not too distant future, we might see a device with tech that complements and enhances the user's experience on long journeys. The EV maker is hiring professionals in the mobile phone field, fueling speculation regarding the new segment.
In related news, Nio will announce its full-year and fourth-quarter performance figures near the end of March. The company will be releasing more info about its future strategies in the earnings report. This news is something to look forward to, because the company plans on developing new projects and products that will pop the stock price.
The EV maker is calling for a strong sales year and expects $9.5 billion this year. Current predictions don't account for its long-term potential in the under-served sedan niche and its prospects in other markets. As geopolitical tensions ease and we have more clarity on interest rates, NIO stock could rise massively in the coming quarters.
Making Sense of the February Delivery Numbers
Nio has reported its latest figures for deliveries in February. The number of cars delivered by the company increased by 9.9% year over year. Sales for the first two months increased 23% compared to the same period last year.
The Covid-19 outbreaks and the Beijing 2022 Winter Olympics have caused a decrease in spending during China's prosperous Lunar New Year holiday period, which has always been a crucial time for retailers. These businesses provide transportation and even hotels.
Last year authorities issued various requirements to prevent the Covid-19 virus from spreading, such as requiring multiple tests, approval from a company's CEO, and quarantining those who come back from areas that are high risk.
Therefore, delivery numbers should start recovering and moving northwards once again in the coming months.
Strong Year Ahead For NIO Stock
This year, Nio's foray into the sedan market will be a major narrative for its investors. The ET7 is set to be launched in China. The car is a full-size luxury sedan likely to be found in multiple territories. The ET5 is a mid-size sedan and will be on the market a little later in the year. The car has achieved the highest pre-order volume in the company's history. The ramp of both vehicles will start slowly. It will pick up the pace during the second half.
Nio plans to launch a new affordable brand. The EV maker is looking to release a model that can be cheaper and more accessible to the masses in China. Nio's products are made with quality in mind and come at a higher price. The premium market has been quicker to adopt electric vehicles. The new brand is aimed at lower-end buyers and is intended to compete with more budget-friendly car manufacturers.
And as I touched upon earlier, it is important to highlight the company's ambitions in the smartphone space. Cars are gaining greater integration with phones and bringing internet connectivity features to buyers.
Risks to the Thesis
Nio plans to issue shares on the Hong Kong and Singapore stock exchanges. Preliminary approval for listing on the Hong Kong Stock Exchange has been granted. The company anticipates trading could commence as soon as March 10. This opens up investment opportunities to more people, but it's important to consider the company's ability to keep up with the demands of these new exchanges.
In addition, readers who have kept up with the issues surrounding DiDi Global (NYSE:DIDI) know how regulatory pressure is sharp for Chinese companies listed on U.S. exchanges. Relations between the U.S. and China have been poor, which has affected many Chinese stocks.
Nevertheless, multiple risks need to be considered with Nio. Perhaps the biggest threat is that it fails to meet production and delivery ramp goals.
From a macro-economic standpoint, the Chinese economic slowdown and new Covid-19 variants are likely to weigh down the stock. Moreover, China has reduced subsidies for new EVs by roughly 30%, affecting demand this year.
Bottom Line on NIO Stock
Due to the broad-based tech sell-off, NIO stock has undergone an utterly undeserved pricing drop. The company is doing well. It will be launching new products and exploring other markets soon. Expect another solid year for the company. The current opportunity to purchase the stock is one you can't miss.
China has always been a profitable market for auto manufacturers, and it's only getting more lucrative over time. The government is supporting the EV sector in a big way and has made some serious changes to attract investors to this emerging industry. More companies will soon be entering China to take advantage of the opportunity. But Nio is well-positioned to claim a leading share in the market.
With its impressive growth prospects in China and Europe, NIO stock is a great value play. The future of the electric vehicle industry is very promising. That is why investors need to start buying into it now.
On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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