If you are a gambler, this may be an ideal time to jump into Nio (NYSE:NIO) stock. But it will require a leap of faith.
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After all, shares of the Chinese electric vehicle (EV) maker are down big so far this year. Nio stock dropped more than 36% since Jan. 1. And that is part of a bigger drawdown in Nio over the last few weeks. Over the last three months, Nio dropped around 52%. Ouch.
There is also a definite shift of sentiment away from Nio over the last month. Analysts are certainly souring on the company’s short-term prospects.
But Nio is also churning out vehicles at an impressive pace. It recently made a big announcement that should help the company in the quarters to come. An earnings report in March will also weigh heavily on Nio’s stock in the immediate future.
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So, there is a lot to consider with this EV company.
Nio Stock at a Glance
Nio last reported earnings in November. Earnings for the third quarter came in at $1.52 billion, which beat analysts’ estimates of $1.48 billion. That is an increase of 128% from the third quarter of 2020. The company also reported a loss per share of 6 cents, but that was better than the loss of 10 cents per share that analysts had expected.
Additionally, the company announced it delivered 24,439 vehicles in the third quarter, an improvement from 12,206 in the same quarter a year ago.
For the fourth quarter, Nio projects that deliveries will come in between 23,500 and 25,000. That would be a drop of anywhere from 3.8% to 4.3% from the third quarter as the company battles supply chain issues.
Revenues for the fourth quarter are projected to be between $1.455 billion and $1.568 billion, an increase of 41.2% to 52.2% from a year ago. However, that would also be a drop of 3.1% to 4.4% from the third quarter.
With a projected drop in revenue and deliveries in the fourth quarter, I am not expecting Nio stock to pop higher when it reports earnings in March. And maybe that is one reason why analyst sentiment has turned from Nio in the last few weeks.
In Jan. 25, analysts had ratings for Nio. Nine of them listed Nio stock as a strong buy; 13 had it as a buy, two had Nio as a hold and one analyst listed it as an underperform.
But in February, there are only eight analysts with a rating on Nio. One has the company’s stock as a strong buy, two others list it as a buy, and the remaining five suggest that Nio stock is a hold.
Despite its challenges, Nio is still churning out vehicles at an impressive rate. It produced 25,034 vehicles in the fourth quarter of 2021, which was an increase of 44% from the fourth quarter of 2020. And for all if 2021, Nio cranked out 91,429 vehicles, which was an 109% increase from 2020.
Nio’s Big Announcement
Nio recently made a big announcement that it will develop a sub-brand model that will be priced below its existing SUV and sedans. While it didn’t release the name of the model, Nio President Qin Lihong previously said “Gemini” is the code name for an upcoming 2022 product launch. So, it is safe to presume that the sub-brand will be the Gemini.
Nio says that the new model will have an annual production capacity of 60,000 vehicles. It will be marketed particularly to people living in China’s smaller cities and rural areas. It will mark Nio’s first foray into the mass market, the company says.
In a research note, Barclays analyst Jiong Shao said Nio plans to launch several new models over the next two years, with most of them geared toward mass-market customers.
So far, Nio really focused on premium vehicles that are marketed toward high-end customers. But it doesn’t make sense for the company to limit itself when so much of its potential customer base wants a more economical option. So, it makes a lot of sense for Nio to expand to the mass market. That should only help Nio gain market share moving forward.
The Bottom Line on NIO Stock
I am on the record as predicting big gains for Nio this year. And so far, that prediction doesn’t look so hot.
But I have a lot of confidence that Nio’s downturn is oversized and will be short-lived. I also like Nio’s battery-as-a-service (BaaS) business model as an alternative to battery charging stations. Drivers simply pull into a battery-swapping station where they can exchange a depleted battery for one that is fully charged. The process takes less than five minutes.
Nio gets subsidies from the Chinese government for its BaaS technology, and the battery-swapping arrangement makes the cost of an EV up to $10,000 cheaper, according to Nio. That will be important as the company enters the mass market.
Currently, Nio trades for less than $25, but has a price target of $56.74. That is an upside of more than 140%. That is a huge opportunity for any investor who wants to take a leap of faith.
As for me, I am still expecting solid gains for Nio this year. But I am not expecting Nio stock to begin to rise until later in the second quarter.
On the date of publication, Patrick Sanders 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.
Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders.
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