Rally in NIO stock
First, we need to see what drove the recent rally in the stock and whether the factors are sustainable. Most of the year-to-date gains have come in the last month and a half. The real turning point came when the company addressed its liquidity and survival concerns by signing a financing arrangement with the government of Hefei in April. The company showed that it can consistently operate in an operationally efficient way by delivering record sales. As a result, the stock soared.
All EV stocks are on fire
Another factor that has lifted most of the EV (electric vehicle) stocks is investors’ general optimism towards this sector, especially from Millennials. EV stocks, including Tesla (NASDAQ:TSLA), Workhorse (NASDAQ:WKHS), and Nikola (NASDAQ:NKLA), have seen triple-digit returns this year.
Among the above-mentioned factors, some of them could be sustainable. For example, the current optimism towards most of the EV stocks could have the makings of a bubble. Some of the EV makers, that have seen skyrocketing returns, haven’t produced a single vehicle yet. However, NIO has several positives to its credit.
China’s EV push to benefit NIO stock
With China’s push towards EVs, NIO is among the front runners to benefit. China has made an exception for EV makers using battery swap technology that can avail EV subsidies. Currently, NIO is the only EV maker actively using this technology. The company got financing from the Hefei government during the survival threat. The financing proves that the company has some form of government backing. Amid deteriorating relations between the US and China, NIO could get added benefits. Read Will Anti-China Rhetoric Drive Chinese Buyers to NIO from Tesla? to learn more.
Loyal customer base to support NIO stock
Apart from these factors, NIO is also a well-liked brand in China, which has created a lifestyle of its own with NIO houses, clubs, and NIO spaces. Read Loyal Customer Base Might Support NIO Stock’s Meteoric Rise to learn more.
In the future, NIO’s positive catalysts remain the pricing details of its EC6 car, which will be released in July. A positive gross margin in the second quarter, as guided by management, could be another positive. Investors should note that there are macroeconomic and company-specific risks. The risks include the fallout between the US and China and the deteriorating auto demand outlook in China.
NIO’s fundamentals are strong
However, the company’s fundamentals remain strong in the long term. After the huge rally, there could a pullback in the short term. The pullback shouldn’t bother long-term investors. Many investors, including Baillie Gifford and Tencent (OTCMKTS:TCEHY), have shown increased confidence in the company.
Should investors wait for a better entry point?
NIO stock isn’t a good option for investors who can’t stomach increased volatility. Baillie Gifford said that “actual investors think in decades, not quarters.” NIO stock could pull back due to rising geopolitical tensions and a break in momentum trading. Investors should look out for these pullbacks to gain a better entry point.