NIO’s actions may not be repeated in 2020, but advantages are available

With 2020 in the books, it is fair to say that it was a spectacular year for electric vehicle (EV) actions, especially those of the Chinese variety, such as Nio (NYSE:NIO) All NIO shares jumped 1,103.48% last year.

In terms of delivery and sales credibility, Nio is perhaps the closest thing investors have to Tesla (NASDAQ:TSLA), ensuring the often used comparisons of “China Tesla”. Yes, there are critics and they claim that, with the wave of new publicly traded Chinese EV makers, it is only a matter of time before the bubble burst.

It remains to be seen whether and when that bubble will burst or whether it is a bubble at all. What is clear is that there are tailwinds for Nio and rivals, including EVs reaching price parity with internal combustion engines in the next three or four years, which is earlier than originally planned.

In addition, China has the world’s worst pollution problem and is relying on electric vehicles as part of its efforts to improve air quality and reduce dependence on fossil fuels. In that sense, there is ample domestic support for Nio, including a $ 1 billion loan from Beijing that served as a lifeline for the then-fighter automaker and an investment by the technology giant Tencent Holdings (OTCMKTS:TCEHY)

Although Nio is not a state-owned company (SOE) in the true sense of the term, Beijing invests in the company’s success, and that is a positive thing for investors with volatile stocks in a still nascent sector.

NIO Stock Faces Imminent Test

Speaking of its relationship with the Chinese government, the Chinese Ministry of Finance recently announced that it is cutting subsidies on new EVs by 20% in 2021. This amounts to a subsidy reduction of around $ 700 for Nio’s newest EC6 model. .

Nio is responding by telling potential customers that if they buy the EC6 by January 10, they can get the 2020 grant, with Nio paying the difference. This is a short-term factor that may appear in the equation of NIO’s shares. The other is January 9th.

This event can bring highly anticipated announcements, including a revelation of a new vehicle. There is speculation that Nio could reveal its first luxury sedan concept, aimed at the Audi A7 or BMW 7 Series. There are also rumors that the company will present a 150 kilowatt-hour battery compatible with all its models. Assuming that happens, there is potential for inventory movement there, because it would increase the range of Nio vehicles while forcing existing owners to upgrade to the new package. Translation: this is a new revenue stream.

Analysts see opportunity on Nãã Day. Before the event, Bank of America analyst Ming Hsun Lee reiterated his “buy” rating on the stock, while raising his target price to $ 59. This implies a 21% rise from where Nio settled on 31 December. December.

For investors, these are realistic expectations

Coming out of a year in which it recorded a four-digit gain and traded at 48x sales, NIO’s shares are expensive, but that does not mean that investors should not nibble on shares, especially in the retraction. It’s more about being realistic from here. Can Nio run higher in 2021? Absolutely. Is that another 1,100% more gain on the cards? Probably not.

Remember that Nio is still an evolving company. Not long ago, survivability was a real problem for investors to ponder this name. It is now the base of the largest EV market in the world.

Speaking of which, there may be 125 million EVs on the road in 2030, with almost half being found in China. This says that there is still a lot of long-term growth ahead for Nio, especially if it is carried out to increase reach capacity and launch new vehicles.

As of the date of publication, Todd Shriber did not (directly or indirectly) hold any position in any of the securities mentioned in this article.

Todd Shriber has been an InvestorPlace contributor since 2014.