NIO stock news triggers 20% rally – will the bulls survive 2020?

NIO (NYSE: NIO) is emerging from the EV crowd and onto the podium as investors call the company “the Chinese Tesla”. The remainder of 2020 is packed with bullish catalysts. These include the unveiling of the EE7, Q3 earnings, month on month delivery updates, and continued talks about European expansion. Despite the positive NIO stock news, an investment does hold risk. Especially in the areas of negative earnings and election volatility.

Table of contents 

  1. Upcoming catalysts 
  2. Is NIO financially healthy? 
  3. What does the smart money say? 
  4. Summary 

NIO stock news – catalysts

The helping hands to the 2020 NIO bulls are strong Q3 earnings, the unveiling of the EE7, and greater exploration of the European expansion.

Analysts are forecasting blowout Q3 earnings on the 10th of November. The estimates are as follows: sales at 15,008 billion, earnings –5606 billion yuan , and EPS at -4,88 yuan. If these benchmarks are met NIO would post a 91% and 50% increase in sales and profit YoY. The bullish sales projections come off the back of NIO reporting record September delivery levels. In September NIO delivered 4,708 units in a month, a growth of 133.2% year-over-year. Add September levels to the Q3 quarter, and you get 12,206. Considering this is above NIO’s Q3 delivery guidance, then bullish analysts do hold weight.

Furthermore, the hype around the EE7 unveiling, an EV sedan, is a significant bullish catalyst for NIO. The reveal is expected at the end of 2020. While the EE7 is in infancy to some the potential for the sedan to have level four autonomy by 2022 offers a glaring lure. In turn, the unveiling should allow NIO to bolster its premium quality image. Lastly, NIO plans to enter the European market at the end of 2021. In particular Norway. The expansionary plan should keep the bull party alive.

NIO stock news – financials

Positive financials 

NIO is in a strong financial position if it can live up to its revenue and earnings projections. While NIO remains unprofitable, it is showing strong bullish signs in earnings, revenue growth, and cash levels. Over the past financial year, NIO grew earnings by 50% to -8.378 billion yuan. Analysts are forecasting NIO to continue their impressive linear like earnings recovery over the next four years. All with the expectation of the EV dark horse entering profitability in 2023.

Negative financials 

Despite the optimism, NIO’s financials are still in choppy waters. Especially in the area of unprofitability and rising debt levels. NIO sits on a debt pile of 11.560 billion yuan with a D/E ratio of 2210.5%. Initially, it might seem like the bearish argument concerning debts is an open and shut case. Especially as NIO is not generating profit to service the debt. However, the real question is, can NIO cover its obligations with cash? In short, yes. NIO holds 10.8 billion in cash and 1.7 billion yuan in receivables to cover debts.

Nonetheless, a highly geared business in which NIO is should raise a red flag for fundamental investors. Moreover, NIO might show earnings growth, but they are still in the red. NIO’s unprofitability is causing its EPS and P/E ratio to be negative. Consequently making it difficult for fundamental investors to jump in.

NIO stock news – smart money

Overall, the smart money, in particular, hedge funds and institutions are relatively bullish on NIO. It seems NIO’s EV offering is acting as a vacuum for hedge funds. Data from Insider Monkey supports this label as the number of hedge funds taking bullish positions in NIO climbed from 14 in Q4 of 2019 to 30 in Q2 of 2020. Not to mention, 30 is NIO’s highest number of bullish hedge funds ever. In turn, the elevator like growth during Q1 and Q2 of 2020 suggests the smart money is bullish. However, re-evaluating the number of hedge funds after the September 13F filings, which will be no later than the 14th of November, is crucial.

In addition to the bullish hedge fund sentiment, the spike in investment bank interest adds to the story. Bank of America, Deutsche Bank, and UBS hold a stake in NIO. However, if we put aside their financial status and focus on their analysts’ reasoning, then the real reason behind the big-name investments becomes clear.

In the eyes of Deutsche Bank analyst Edison Yu, NIO is shaping up to be the next iconic auto company. Yu explains how NIO’s mobile truck charging, battery swap network, and software around autonomous driving makes it ahead of its peers. Consequently, NIO, alongside Tesla, serves as a beacon of technological innovation in the EV space, which saw Yu raise his price target to $24. UBS and Bank of America analysts hold a similar bullish vision, as they raised their price targets above the $21 mark.

CNBC interview with Deutsche Bank analyst Edison Yu

Overall, the smart money is pouring into NIO, providing a strong bullish undertone. The inequality below summaries the underlying sentiment. In the last quarter, 205 institutions increased their NIO position representing a share increase of 120,894,143. Contrast that to only 74 institutions decreasing their NIO positions by 37,128,037.

Summary – YIG Takeaway

Before I begin, I remind our viewers that this is not financial advice. Instead, the information above is an investment commentary from extensive research.

Overall it looks like the injection of catalysts will keep the NIO bulls charging for 2020. (opinion not advice) The smart money is giving the thumbs up as the number of hedge funds pouring into NIO increases. However, concerning financials and election volatility could cause corrections. Nonetheless, the bulls are winning the 2020 tug-of-war for now.

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The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

Written by Patrick McLoughlin, Senior Manager of YIG.

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