Why Is NIO Stock Up and Will the Rise Continue?

Mohit Oberoi, CFA - Author

Oct. 30 2020, Updated 9:44 a.m. ET

NIO stock rose 16.28 percent on Oct. 29 and hit a new all-time high of $32.20 during the day. The stock has gained almost 700 percent this year and its YTD returns even surpassed Tesla, which is up 390 percent for the year. Why has NIO stock gone up sharply this year? Can investors can expect more returns from the Chinese electric vehicle maker?

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What is NIO's stock news?

On Oct. 29, NIO announced that it achieved the feat of producing 5,000 cars in October, which is a record high for the company. Unlike Tesla, which owns a large part of its production including for some components, NIO cars are made at a JAC Motors facility. 

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Producing 5,000 cars in a month is a milestone for NIO. The company delivered a record 4,708 cars in September and looks set to break that record soon based on the rising production. Both Tesla and NIO are supply-constrained companies and can only sell as many cars as they produce. Tesla will have two new factories in Berlin and Texas to augment its existing production capability.

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Earlier this year, Tesla achieved the milestone of delivering its millionth car. The company expects to deliver half a million cars this year. Five years ago, not many people thought that Tesla can achieve this kind of scale. Like Tesla, NIO has also had impressive deliveries, which have taken its stock higher this year.

NIO's stock price

NIO is among the best-performing stocks in 2020. The company hasn’t released its third-quarter earnings date yet. Tesla reported its earnings earlier in October and posted its fifth consecutive profitable quarter.

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What is NIO's stock forecast?

Over the last two weeks, Morgan Stanley and JPMorgan Chase issued bullish notes on NIO. However, NIO is trading over 40 percent higher than its consensus target price. That said, analysts have been behind the curve when it comes to electric vehicles. Even Tesla has been trading above its consensus target price for the most part since October 2019.

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Along with NIO increasing its deliveries, the company has also managed to improve its finances and turned positive on gross margins in the second quarter. By the end of the year, NIO expects its gross profit margins to rise to double digits.

The company is also expanding beyond China. Europe could be the next market for NIO. That said, after the recent rally, NIO stock’s valuation has started to look expensive. Investors should wait for a correction before entering the stock.


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