NIO shares may not repeat 2020, but there is a good side

With 2020 in the books, it is fair to say that it has been a spectacular year for shares in electric vehicles, especially those of the Chinese range, such as Nine (NYSE:NIO). All the NIO stock did last year was 1,103.48%.

In terms of reliability and sales of delivery, Nio is perhaps the closest thing investors should have Tesla (NASDAQ:TSLA), which justifies the often used “Tesla of China” equations. Yes, there are critics and they claim that it is only a matter of time before the bubble bursts, with the spate of new Chinese EV manufacturers.

It remains to be seen if and when this bubble pops up, or if it is even a bubble. What is clear is that there are headwinds for Nio and competitors, including cars that will reach price equilibrium with internal combustion engines over the next three or four years, which is earlier than originally predicted.

In addition, China has the world’s worst pollution problem and relies on EVs as part of its efforts to improve air quality and reduce dependence on fossil fuels. On the note, there is ample domestic support for Nio, including a $ 1 billion loan from Beijing that acted as a lifeline for the then struggling carmaker and an investment in technology. Tencent Holdings (OTCMKTS:TCEHY).

Although Nio is not a state-owned enterprise (SOE) in the true sense of the term, Beijing is invested in the success of the company, and it is positive for investors with a volatile share in an ever-emerging industry.

NIO stock faces imminent test

The Chinese Ministry of Finance recently announced its relationship with the Chinese government that it will reduce subsidies on new EVs by 20% by 2021. That amounts to a reduction of about $ 700 for Nio’s latest EC6 model.

Nio responds by saying that customers would be buying the EC6 by January 10, while they could get the difference in 2020. This is one short-term factor that could contribute to the NIO stock comparison. The other is Nio Day on January 9th.

The event could bring a lot of anticipated announcements, including a new vehicle. Speculation is rife that Nio may launch its first luxury sedan concept, aimed at the Audi A7 or the BMW 7 Series. There is also a chat between the company and a 150 kilowatt-hour battery pack that is compatible with all its models. Assuming this happens, there is potential for stock shifting there as it will 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 in Nio Day. Prior to the event, Bank of America analyst Ming Hsun Lee reiterated his “buy” rating on the stock while raising its price target to $ 59. This implies a 21% increase from where Nio settled on 31 December.

For investors, it’s about realistic expectations

NIO stock is expensive, but that does not mean investors should not nibble on the stock, especially not with setbacks. It’s more about being realistic. Could Nio be higher in 2021? Absolutely. Is there another 1100% -plus profit in the cards? Probably not.

Keep in mind that Nio is still a developing company. It was not so long ago that the viability was a real problem for investors to come up with this name. Now it’s lynchpin the world’s largest EV market.

If we talk about this, there could be 125 million EVs on the road by 2030, with almost half in China. It says there is still a lot of long-term growth ahead for Nio, especially if it is done to increase the range and debut of new vehicles.

At the date of publication, Todd Shriber had no (direct or indirect) positions in any of the securities mentioned in this article.

Todd Shriber has been a contributor to InvestorPlace since 2014.