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Under $10 NIO Stock Surges With New Capital - Should You Buy?

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Persistent rise in selling and advertising expenses, and increasing operational costs weighed on electric vehicle (EV) manufacturer NIO Inc. (NIO - Free Report) throughout the year. However, things are now looking brighter for the NIO stock amid increased investments, Chinese stimuli, and growing demand for its newest models. So, is this an apt moment for investors to buy the NIO stock below $10? Let’s explore – 

NIO Stock Bounces Back

For most of the year, the NIO stock has given its investors fewer reasons to rejoice as its shares are down 26.3% year to date. 

However, things began to turn around for the EV maker in the last month, with the NIO stock outperforming the Automotive - Foreign industry (+65.3% vs +0.9%).

Zacks Investment Research

Image Source: Zacks Investment Research

The NIO stock is up 25.6% in the past five sessions and recently broke above the 200-day moving average (DMA), signifying a bullish trend. So, what’s behind the current uptrend?

Zacks Investment Research

Image Source: Zacks Investment Research

NIO Gets New Investment

NIO’s shares shot up after the company declared fresh cash investment from its strategic investors in China. These investors are expected to inject RMB 3.3 billion ($470 million) into NIO China, the primary operating unit.

NIO’s ownership will be more than 88% in NIO China, while the strategic investors will hold nearly 12%. NIO is also providing cash to bolster its struggling China unit. 

To make the business profitable, EV start-ups like NIO need more cash. Analysts are projecting that NIO will use around $2.8 billion in cash to build its business this year. Moreover, cash burns are expected to be $1.1 billion and $850 million in 2025 and 2026, respectively.

China’s Stimulus a Boon for NIO Stock

Due to the property and unemployment crisis, China’s ailing economy recently got a boost from the People’s Bank of China’s (PBOC) rollout of significant stimulus measures. Governor of PBOC, Pan Gongsheng said that from reserve requirements to short-term interest rates, all will be lowered to aid the economy. 

These stimulus measures to revive the economy bode well for NIO as they increase the consumers’ purchasing power and enable them to acquire high-end EVs such as the ES8 and ET9. China’s economic stimulus, thus, propelled the NIO stock higher.

NIO’s New Models – A Game Changer

The NIO stock is further expected to get a boost from the new launch of its sought-after low-priced model Onvo L60, which is expected to give stiff competition to rival Model Y of Tesla, Inc. (TSLA - Free Report) .

The price of the L60 model with BaaS (battery as a service) is $21,200, while the Tesla Model Y starts at $35,280, making the Onvo L60 model cheaper by 40%. 

The Onvo L60’s drag coefficient is lower than Tesla’s Model Y, helping the car to reduce energy consumption. The Onvo L60’s space is more than Model Y, as a result, its wheelbase is 2950 mm, much longer than Tesla’s 2890mm. So, the Onvo L60 out-competes the Model Y in price, performance, and comfort.

NIO – Surpasses Production Goals

Recent deliveries above the required target and improvement in vehicle margins also boosted the prospects of NIO. In the second quarter, revenues improved as NIO registered delivery of 57,373 vehicles, up 143.9% from a year ago. The sales of the premium smart EVs easily surpassed the 20,000-unit delivery threshold.

As components and supply-chain costs improve, vehicle margins are increasing. In the second quarter, vehicle margins were 12.2% and compared favorably with 6.2% a year ago. Moreover, NIO expects vehicle margins to increase to around 15% by the year-end. 

Is This the Right Time to Buy NIO Stock?

Stakeholders should retain their market shares in NIO stock. This is because the NIO stock is poised to gain banking on fresh capital from Chinese partners, China’s stimulus bazooka, competitive pricing of new models, and the significant increase in production of EVs to cater to growing demand.

The recent cash injection encouraged Citigroup Inc.’s (C - Free Report) Jeff Chung to raise NIO’s short-term price target to $8.90 a share from the current $6.7. Kevin Lau of Daiwa Securities Group also lifted NIO’s price target to $10. 

However, the company’s operational efficiency is uncertain. After all, NIO’s debt-to-equity of 71.5% exceeds the peer group’s 23%, indicating higher debt on its balance sheet than competitors. Thus, new entrants should place their bets on the NIO stock once operational inefficiencies are addressed.

Zacks Investment Research

Image Source: Zacks Investment Research

The NIO stock has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.


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