NIO Limited (NYSE:NIO) Goes Parabolic, More Gains To Come

NIO Growth Accelerates With New Opportunities On The Horizon

Shares of NIO, Limited (NYSE:NIO) popped after it reported its 2nd quarter results. The company’s 146.5% YOY revenue growth was impressive enough by itself so beating the consensus was icing on the cake. The company said that orders, production, and capacity are both growing within the world’s largest car market putting it on track for profitability sometime in 2021. Now, with the 3Q report at hand, shares are going parabolic and look like they could keep moving higher long into the future. Competitor Tesla (NASDAQ:TSLA) saw its shares make stunning moves like this before it became profitable and look what they’ve done in the time since.

The analysts at JP Morgan are very bullish on this stock. They upgraded NIO to Overweight in the wake of the 2Q report and put a Wall Street high-price target of $40 on the stock. With shares trading at $30, that’s a 33% upside and still just the beginning of what this stock is capable of doing. According to JPM analysts NIO is not a winner-take-all candidate but rather a best-in-breed leader in a rising-tide-lifts-all-boats environment. The takeaway for us is that Wall Street loves this stock, it’s got a bright future and one supported by secular trends.

"We expect Nio to be a long term winner in the premium space among Chinese brands vs. Xpeng leading the mass market, while BYD should likely see strong EV demand with rising external battery sales from 2022," write analyst Nick Lai and team.

The Outlook For NIO Limited 3Q Earnings Is Robust

The outlook for NIO Limited’s 3Q revenue and earnings is robust to say the least. The only negative is that EPS is still negative but the ($0.17) consensus is less than half the loss posted last year. On a sequential basis, the ($0.17) loss is flat from the previous quarter but does not reflect the increase in revenue.

Revenue estimates project not only a 15% increase from the previous quarter but an acceleration in YOY growth to 234%. Assuming the analysts have been as shy with these estimates as they have been with just about every other stock I’ve been covering the odds are high NIO will beat the consensus.

Looking forward, sales of NIO’s two SUV models should continue to accelerate over the next few years and will be boosted by tax credits. Earlier this year the Chinese government decided to extend tax-breaks and subsidies for at least two more years. The incentives are worth $3500 per vehicle and a 10% sales tax (waived) that American manufacturers don’t share. U.S. incentives are tied to the number of vehicles produced and all the top manufacturers surpassed those levels long ago.

NIO also has a design advantage that may help its sales. NIO Limited vehicles have removable battery packs that can be swapped out when the charge runs out. Couple this with a growing network of battery service stations, subscription-like memberships, and the option to buy a car without a battery at a significantly reduced price makes it a very attractive vehicle.

The Technical Outlook: NIO Is Trending Strongly But There Are Risks

Shares of NIO Limited are trending strongly but there is a risk. The last few days spike in prices has been associated with the U.S. election which sets the market up for a disappointment. The uptick in prices is assuming a Biden victory and with it improved relations with the U.S. and lower tariffs. While Biden can be relied on for better U.S./China relations don’t count on him to give up any advantages gained by his predecessor too easily.

So, in the bull-case, the last week of candles produced a large, strong Rising Methods continuation pattern. The Rising Methods (usually Rising Three Methods) is a large Marabuzo Candle followed by a consolidation and another large Marabuzo candle that closes at a new high. This one is not only large, but it also sets a new all-time high and is accompanied by bullish indicators. The caveat is that MACD on the daily chart is diverging from the new high but that is offset by a more-bullish convergent set-up on the weekly charts. My take is that price action may give a better entry near-term but it may not be a big discount or last very long.