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Nio Inc. (NYSE: NIO) The glittering rally came to a halt on Friday after short seller Citron Research spoiled the party by suggesting that the EV maker’s astronomical valuation becomes unjustifiable.
Nio’s Rally and The Hard Fall: Nio’s stock, which ended 2019 at $ 4.02, has started to turn the corner with the post-COVID resumption of shipments. The rally gained momentum amid the company’s conscientious efforts to innovate, reduce fat and work more on its service-oriented approach.
Prior to Friday’s session, the stock was up around 1,100% from Tesla Inc. (NASDAQ: TSLA) 392% ahead.
Nio started Friday’s session on a high note, thanks to strong quarterly results released by national peers Li Auto Inc. (NASDAQ: LI), and hit a high of $ 54.20. It only took six sessions for the stock to drop from $ 40 to $ 50.
However, stocks came under strong selling pressure following Citron’s report in which the company gave Nio’s stock a price target of $ 25. After dropping around 16% at one point in the session, the stock cut its losses to some extent to close 7.7% at $ 44.56.
Related Link: Nio, Li Auto Take Big Steps After Xpeng’s Third Quarter Results
Is Citron’s argument valid? Citron insisted on Nio’s loss of market share due to Tesla’s prices, especially the “made in China” Model Y competitively. The US EV giant’s price cuts can undoubtedly hurt.
However, Nio has carved out a niche for itself with its technological prowess and service-oriented approach to attracting customers.
After recently unveiling a 100 kilowatt-hour battery, the company is reportedly working on a 150 kWh battery, which can almost double the range of its electric vehicles. According to reports, the company is also working on the development of internal chips for its ADAS system.
The company has succeeded in strengthening its part of mind with consumers.
“There is compelling evidence that consumers increasingly perceive Nio as a ‘premium high-end brand’ with top-notch technology and service,” said Deutsche Bank analyst Edison Yu in a note at the end of September.
The company has made its cars affordable by introducing the Battery-as-a-Service program, which cuts a significant amount off the list price.
Nio is also considering global expansion and would form a separate team to work on the roadmap for exporting vehicles to Europe.
Can profits get the stock back? Nio is expected to release its third quarter fiscal year results next Tuesday before the market opens. Analysts, on average, estimate a loss of 17 cents a share on earnings of $ 652.77 million.
This is a marked improvement over the loss of $ 2.38 per share and revenues of $ 262.47 million recorded for the quarter last year.
Nio’s third-quarter shipments jumped more than 150% year-over-year to 12,206, setting a quarterly record. Strong momentum continued in October, with the company reporting a 100% increase in deliveries to a record 5,055 units for the month.
Stretched evaluation? The ramp-up observed since the second quarter has made the valuation of Nio unattractive and unsustainable. In fact, most EV stocks are showing foam and are in bubble territory.
That said, Nio has been disciplined and proactive in improving its fundamentals and operates in the sweet spot of a booming Chinese EV market.
Fundamental performance in the coming months will serve as the key to the stock’s trajectory.
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