NIO Stock Price Forecast September 2021 – Time to Buy NIO?

NIO (NIO) stock rose almost 4% yesterday and managed to bridge its 2021 losses to 26.5%. EV (electric vehicle) stocks have been weak in 2021 and are underperforming markets as well as legacy automakers by a wide margin.

What’s the forecast for NIO stock as we enter September and is the steep fall in the shares from their 52-week highs a good buying opportunity?

Why has NIO stock price been falling?

There are multiple reasons why NIO stock has fallen this year. Firstly, there has been a terrible sell-off in the sector this year after the sharp rally in 2020. EV companies were trading at exorbitant valuations at their peaks which made markets apprehensive. The sell-off in growth names also impacted EV companies. All the EV companies are making losses with the notable exception of Tesla.

Along with the sell-off in EV stocks, China’s tech crackdown did not help NIO either. While the country hasn’t targeted the EV industry, and in all probability wouldn’t do so considering its strategic importance, investors have been wary of investing in Chinese stocks amid the crackdown. Several leading fund managers including Cathie Wood of ARK Invest have been dumping Chinese stocks. That said, Wood has again been buying JD.com shares.

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Recent developments

Last month, NIO released its second-quarter 2021 earnings which showed revenues rising 127% over the corresponding period in 2020. Its gross profits also increased fivefold to $243.8 million during the period. The Chinese EV company has come a long way since the first quarter of 2020 when it was trading in the low single digits. The company was posting negative gross profits then. However, it started posting positive gross margins beginning the second quarter of 2020 and has since gradually increased the margins. In the second quarter, the margins were 18.6% which were slightly below the 19.5% that it had posted in the first quarter.

NIO deliveries

The company expects to deliver between 23,000-25,000 cars in the third quarter. At the top end of the guidance, it would mean a yearly rise of almost 105% in deliveries. In the second quarter, NIO had delivered 21,896 vehicles—a YoY rise of 112%.

Here it is worth noting that almost all the pure-play EV companies are supply-constrained and can sell only as many cars as they can produce. Earlier this year, NIO extended the partnership with its manufacturing partner JAC Motors to double the production capacity.

NIO would soon release its delivery for August which would also have an impact on its stock price. Chinese EV companies like NIO, Li Auto, and Xpeng Motors release their delivery report on a monthly basis. EV giant Tesla provides quarterly updates on production and delivery.

Bloomberg reported that NIO is planning to invest in British sports carmaker Lotus. If it were to be true it will be a transformation for NIO as the company was cash strapped last year and was on the verge of bankruptcy. However, after multiple rounds of capital raise, it is a cash-rich company and ended the second quarter with total liquidity of $7.5 billion

NIO stock price forecast

According to the data from CNN Business, NIO has a median target price of $61.10 which is a premium of 55% over current prices. Its street high target price is $92.15 which is a premium of 134% over current prices. Of the 20 analysts covering the stock 17 rate them as a buy while two analysts have a hold rating. Only one analyst has rated NIO as a sell or some equivalent.

Citi reiterated its rating

Earlier this month, Citi reiterated its buy rating on NIO and assigned a target price of $72 after the company’s earnings release. The brokerage weighed in on the lower gross profit margin in the quarter and attributed it to an unfavorable product mix as the Chinese EV maker sold more ES6 in the quarter.

“With more products launching in 2022E, mgmt. has indicated that they would accelerate the D&A for fixed assets of existing NT (Nio Technology) 1.0 platform products, which would lead to increase in D&A costs starting 3Q21, with GPM (gross profit margin) impact of ~2% per vehicle,” Citi said in its note.

NIO stock price long-term forecast

NIO has the tacit support of the Chinese government and the country has a special subsidiary category for battery swapping where only NIO qualifies. The country also bailed out the company when it was struggling with capital raise last year. Over the long term launch of new models and entry into new markets will drive value for investors.

NIO has already announced an expansion in Europe beginning with Norway and hinted at targeting Germany next. Tesla is also setting up a Gigafactory in Berlin to meet the growing demand for its electric cars.

Valuation and technical analysis

NIO stock now trades at an NTM (next-12 months) enterprise value-to-sales multiple of 8.4x which is not far away from the all-time low of 7.65x. The stock looks attractive after the massive crash. The concerns over China targeting NIO especially seem misplaced as the country has put a great emphasis on the development of the EV industry in the country as part of its “Make in China 2025” plan.

Looking at the charts, NIO trades below the 50-day, 100-day, and 200-day SMA (simple moving average). The 100-day SMA would be the first resistance for the stock. The MACD (moving average convergence divergence) gives a buy signal for the stock while the 14-day RSI (relative strength index) is a neutral indicator.

Overall, NIO looks like a good way to play the pivot towards electric cars. The stock’s valuation multiples now look much more reasonable than they did at the peak.

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