NIO Stock’s Outlook amid EV Optimism and COVID-19

  • Based on Thursday’s closing prices, NIO (NYSE:NIO) stock has fallen 14.2% in 2020. Tesla’s (NASDAQ:TSLA) stock price has risen 92% during the same period.
  • NIO has had its moments this year. The company has raised capital and entered into a definitive agreement with the Hefei municipal government. Also, the worst of COVID-19 seems to be over for the Chinese EV (electric vehicle) maker. However, stock markets have been cold to the company despite the euphoria about EVs.

NIO stock’s outlook

NIO’s stock price has fallen by 4.5% since April 29. The company announced a definitive agreement with strategic investors that included the Hefei municipal government. As I noted previously, the capital raise was good news. However, the capital raise doesn’t address the company’s cash burn, which hampers its long-term outlook.

Good and bad news

The good news for NIO is that its operations have resumed in China. The country has turned around after the pandemic. Business operations have largely resumed. NIO’s April deliveries also looked encouraging. The capital raise would help the company tide over the near-term cash crunch.

NIO still needs to survive as a sustainable business without frequent capital raises. The company posted negative gross margins in the fourth quarter of 2019 and its cash burn rate is quite high.

NIO expects better days ahead

Meanwhile, it isn’t all gloom and doom for NIO stock. During the earnings call for the fourth quarter of 2019, the company sounded positive about posting positive gross margins in the second quarter. NIO expects the gross margins to rise to double digits later this year. Also, the new EC6 model is coming later this year. On a macro level, the Chinese government will likely bail out the troubled EV maker in one form or another.

The recent strategic investment from the Hefei municipal government should be seen in the same light. China has also extended EV subsidies. NIO doesn’t qualify for the subsidies. The starting price for the company’s cars is above the threshold set by the government. However, China has said that it intends to support the battery swapping technology that NIO offers.

Analysts’ opinion on NIO stock

NIO’s outlook will depend on how the company’s gross margins and cash burn rates progress. On a macro level, China is supporting the EV industry. The country intends to increase EV sales. However, NIO has to turn the corner sooner rather than later. The recent capital raise won’t last forever. The company needs to be a sustainable venture.

Tesla versus NIO

Wall Street analysts aren’t bullish on NIO’s outlook. Only two analysts have a “buy” or higher rating on the stock. Three analysts have a “sell” rating, while nine analysts have a “hold” rating. The stock’s mean consensus target price of $3.96 represents a potential upside of 14.8%. Notably, analysts are even bearish on Tesla’s outlook. The company’s mean consensus target price is almost 25% below its current market prices.