Nio Stock Forecast and Price Prediction June 2021 – Is Nio a Good Stock to Buy?

NIO stock is gaining momentum in June. It gained 6.8% on Friday which took its month-to-date gains to 18.3%. What’s the forecast for NIO stock in June 2021 and should you buy it now?

NIO and other electric vehicle stocks were looking strong at the beginning of 2021 and they spiked after Democrats took control of the House after the Georgia runoff. President Biden had promised friendly policies towards the green energy sector unlike his predecessor Donald Trump who favored the fossil fuel sector.

Electric vehicle stocks came under pressure

NIO stock went to an all-time high of $66.99 amid the surge in electric vehicle stocks. However, soon the sector came under pressure amid the sell-off in growth names. Also, investors started to question the high valuations of green energy companies.

NIO stock bottomed near $30 and has since recovered smartly from the lows. It had fallen below its 50-day SMA (simple moving average) in February and in May it fell below the 200-day SMA which was a strong support channel for the stock. Now, amid the rally in the stock, it has crossed above the 50-day and 200-day SMA which is a bullish technical signal.

There has been strong momentum in all electric vehicle stocks and they have recouped some of their 2021 losses. However, despite the recovery NIO stock is down 6.3% for the year and still trades at a 32% discount to its 52-week highs.

Recent developments

There have been some positive developments for NIO. The company has received a European Whole Vehicle Type Approval for its ES8 SUV. During the first quarter 2021 earnings call, it announced plans to enter the European market beginning with Norway. So far, the company sells its cars only in China, its domestic market.

Like all other electric vehicle producers, NIO is also a capacity-constrained company and can sell only as many cars as it can produce. This year, its production plans were disturbed due to the global chip shortage and it lowered its first-quarter production guidance. The company’s May production was lower than that in April due to the chip shortage.

Chip shortage

Meanwhile, the chip shortage situation is expected to get better in the second half of 2021 which would help NIO increase in deliveries. In the medium to long term, it is working to increase its production capacity. The company does not produce cars and its electric cars are made at a facility of Jianghuai Automobile Group popularly known as JAC. Last month, the company announced plans to double its production capacity to 240,000 annually. This would be a big milestone for the NIO.

NIO should continue to see high growth

The demand for electric cars is increasing even as the market is getting crowded. In the premium electric vehicle segment that NIO is targeting, there is competition from Tesla which recently unveiled its Tesla Model S Plaid. Also, in the Chinese market NIO competes with Tesla Model Y which the Elon Musk-run company had priced competitively.

NIO was facing a survival crisis in 2020 but has since come a long way. It was posting negative gross margins until the first quarter of 2020 but has since gradually improved its financial performance. The company’s vehicle gross margin was an impressive 21.2% in the first quarter of 2021. While NIO’s gross margins trail that of Tesla, it is fast catching up.

NIO has a strong balance sheet

Also, NIO managed to post positive free cash flows in the first quarter while its total cash and cash equivalents were $7.3 billion at the end of the quarter. The cash holdings would help NIO cover its growth as well as R&D expenses.

NIO’s sales increased 108% in 2020 and analysts expect the company’s revenues to rise 117% year-over-year in 2021 also. That said, growth hasn’t really been a concern for electric vehicle companies. Markets have been apprehensive about their valuation.

Electric vehicle stocks trade at a premium

NIO commands a market capitalization of $57 billion which is similar to that of Ford. At its peak, NIO was worth more than Ford. However, legacy automakers’ stocks have outperformed in 2021 as markets seem impressed with their vehicle electrification plans. Last month Ford unveiled the all-electric version of its best-selling pick-up truck F-150 which received good reviews.

NIO stock valuation

NIO stock trade at an NTM (next-12 months) enterprise value to sales multiple of 11.5x which might look high. However, the company has several growth drivers in the medium to long term. These include an eventual entry into the US market, the launch of new models, and a further improvement in battery technology.

Earlier this year it unveiled the ET7 model which has a range of over 600 miles for the top model. Incidentally, earlier this month Tesla dropped plans for the Model S Plaid+ version which has a higher range as Musk believes the Plaid version is good enough with a 390-mile range. Higher range helps address range anxiety. Tesla has also gradually increased the vehicle range through improvement in battery technology.

Wall Street analysts see upside in NIO stock

To sum it up, the momentum seems to be with NIO stock and it is looking strong on the charts. While it may appear somewhat overvalued based on the valuation multiples, investors seem willing to pay the higher premium for the strong growth. Wall Street analysts are also bullish on the stock and its median target price of $58.86 is a 29% premium over current prices.

Earlier this month, Citi upgraded NIO stock from neutral to buy and assigned a target price of $58.30. “We sense a strong demand recovery from late Apr-21 in China … and expect NIO’s monthly new order volumes in May-Jun to be 20-30% higher than the average monthly level in 4Q20 peak season. After the recent stock price correction from the peak in 4Q20, we believe this is a good re-entry point for the long-term investors, given the ongoing re-rating catalysts,” said Citi analyst Jeff Chung in his note.

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