NIO ET7 sedan
Source: NIO Facebook

NIO Stock Starts to Recover After Sell-Off, $50 Range Is in Sight

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Jun. 11 2021, Published 9:56 a.m. ET

After pulling back sharply since February, NIO stock has started inching up again. In less than a month, the stock has recouped 37 percent of its losses. At this stage, investors might wonder how high NIO stock can go.

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NIO and most of the other EV names saw a sell-off along with other growth names starting in February. There were expectations of higher inflation and higher interest rates. Another major culprit for the sell-off in EV names was the global chip shortage. However, in recent weeks, some of these stocks have started recovering.

Why NIO stock is going up

NIO stock has gained about 37 percent in less than a month and it's currently trading close to $43. As I noted earlier, a bounce was long due in the stock since it had pulled back excessively amid the broader pullback and global chip shortage concerns.

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nio stock rebound
Source: NIO Facebook

There have been several other positive catalysts as well that have propelled the stock higher. NIO recently announced a renewal of its manufacturing agreements with Jianghuai Automobile Group, which included expansion in annual production capacity to 240,000 units. The capacity expansion is seen as a sign that the company foresees strong demand ahead.

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NIO's entry into Norway and potentially other European countries is also a positive. The stock has also received positive commentary from analysts lately. Citi upgraded NIO to a buy, while Morgan Stanley reiterating its overweight rating. These factors have led the stock to make an up move after a sharp drop.

NIO stock price prediction

According to the consensus compiled by Market Beat, 19 Wall Street analysts cover the stock. There aren't any sell ratings, while 13 analysts rate it as a buy and six rate it as a hold. Analysts’ average 12-month target price is $51.69, which implies a potential upside of 21 percent. Following a drop in NIO’s stock price, it has received some analyst upgrades as well as positive analyst commentary.

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On June 8, BOCOM International initiated coverage on NIO stock with a buy rating and a target price of $57.

On June 1, Citi analyst Jeff Chung upgraded the stock from neutral to buy with a target price of $58.3. The analyst expects higher EV sales in China for 2021 and going forward. He expects NIO’s orders to rise substantially in the second quarter of 2021.

How high can NIO stock go?

Most of the negative catalysts that led to the pullback in NIO stock seem to have been exhausted or are on the verge of it. The market rotation to value from growth is continuing but investors are looking towards quality growth names. Most of the impact of the global chip shortage has already been priced in. Therefore, the recent positive catalysts helped NIO stock break the downward spiral.

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A seasonally stronger period for auto sales has started. This along with the positive sales momentum for NIO should help the stock. The fundamentals are already in place for the company, including international expansion opportunities, its battery-as-a-service advantage over peers, the Chinese government’s backing, and the overall positive customer satisfaction and vehicle quality. In the near term, the stock has the potential to go up to $50, which should keep inching up with every positive news.

However, this doesn’t mean that there won’t be corrections or pullbacks along the way. NIO stock has been and will likely continue to be volatile. Only investors who can stomach high volatility and have a long-term horizon should go for the stock.

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nio day
Source: NIO Facebook

When is NIO Day 2021?

The much-awaited 2020 NIO Day was held on January 9, 2021. The company usually launches its new products and services at NIO Day, which is an annual event. NIO unveiled its NIO ET7 sedan. There hasn't been an announcement from the company about NIO Day 2021. However, it's expected to be scheduled either at the end of 2021 or early 2022.

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According to CnEVPost, NIO has started planning for NIO Day 2021. The company is looking for the right city in China to host the event. NIO will select three candidate cities for the next NIO Day event on July 3. These cities will be revealed on NIO App from July 20–22. The users will be able to vote for the final location within the next two days.

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NIO versus Tesla stock

While NIO has lost 12 percent of its value YTD, Tesla stock has lost close to 14 percent. Both of the stocks have dropped to a similar degree seen from their respective 52-week highs. NIO stock has lost 32 percent and TSLA’s drop comes close to 31 percent. The major difference in the stock price movements for both of them is their recent performance.

NIO stock has recovered by more than 37 percent in less than one month, while Tesla stock has only gained 7 percent in the same time. Some of the positive catalysts that materialized for NIO were absent for Tesla like the announcement regarding capacity addition and international expansion.

Tesla has suffered a few setbacks, like consumer complaints as well as regulatory scrutiny in China, which raised eyebrows across the investor and analyst community. China is Tesla’s strongest growth engine and slowing growth could hit its growth story. NIO’s home-grown advantage in China could also continue to provide it will tailwinds that might be missing for Tesla.

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