Is NIO Stock a Buy After China Stimulus, Cash Boost & Record Q3 Sales?

After underperforming on the bourses for much of 2024, China's noted electric vehicle player, NIO Inc. NIO, has made a solid comeback in the past month. Shares of NIO have rocketed more than 69% over the past month, handily outperforming the industry, sector and S&P 500. The stock has also surpassed the impressive growth of its closest peers, Li Auto LI and XPeng, during the same period.

One-Month Price Performance Comparison

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In fact, in the last six trading sessions alone, NIO has rallied 32%, breaking above its 50- and 200-day moving averages last Tuesday, signifying a bullish trend. Besides the bold stimulus plan unleashed by China's central bank last week, NIO shares have got a significant boost from the recent RMB 3.3 billion ($470 million) cash investment by three investors. Additionally, the excitement surrounding the company's record third-quarter deliveries has contributed to the rally.

Let's take a closer look at these developments and assess the stock's fundamentals to understand if now is the time to initiate new positions in the stock.

NIO Shares Trading Above 50 & 200-Day SMA

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NIO Gets a Boost From China's Sweeping Stimulus Bets

To lift the country's ailing economy and stock market, The People's Bank of China announced cuts to the benchmark interest rate and the reserve requirement ratio, along with reductions in mortgage rates for homeowners and loans to investors and companies to buy back their stock. This has set off a rally in Chinese stocks, including NIO. The stimulus measures aimed at reviving the economy are favorable for NIO, as they enhance consumers' purchasing power and make it easier for them to afford big-ticket items like cars.

Investors Cheer NIO's New Capital Injection

Two days back, NIO announced a significant investment deal for its Chinese subsidiary, NIO China. Strategic investors— Hefei Jianheng New Energy Automobile Investment Fund Partnership, Anhui Provincial Emerging Industry Investment Co, and GS Capital— will invest RMB 3.3 billion in cash for newly issued shares of NIO China. NIO itself will also invest RMB 10 billion. Upon the completion of the transaction, NIO's ownership will be more than 88% in NIO China, while strategic investors will hold nearly 12%.

Additional cash is crucial for EV startups like NIO, which are not yet profitable, especially as the company gears up for its next phase of growth. The investment will provide NIO with a stronger financial foundation, allowing it to expand its technology, services, and user community. NIO also has the option to invest another RMB 20 billion by the end of 2025.

NIO Hits Record-High Quarterly Deliveries

Yesterday, NIO reported a significant boost in vehicle deliveries, with September seeing a 35.4% year-over-year increase, totaling 21,181 vehicles. The deliveries included 832 vehicles from the new "ONVO" brand. In the third quarter, NIO achieved a record high of 61,855 vehicle deliveries, marking an 11.6% rise from the previous year. The company's total cumulative deliveries reached 598,875 units as of Sept. 30.

NIO's ONVO Model & Battery Swap Tech Instill Optimism

Given the high price point of its popular models like ES6, ET5T, ES8, EC6, EL7, ET5, ET7 and EC7, NIO has made a smart move by expanding beyond its luxury lineup with the launch of a more affordable ONVO brand. L60, ONVO's first product, commenced deliveries last month.  L60 is cheaper than EV giant Tesla's Model Y in China and is expected to challenge its market share. NIO is confident that the ONVO brand will drive future growth.

On a further positive note, NIO aims to install battery swap stations across 2,300 counties in China by 2025 end. Additionally, it is constructing a new manufacturing facility in Wuhan, targeting 1,000 battery swap stations annually. Its "Power Up Partner Plan" invites collaboration for building and sharing charging stations.

Encouraging Estimates for NIO

The Zacks Consensus Estimate for NIO's 2024 and 2025 revenues suggests a year-over-year uptick of 26% and 68%, respectively. Estimates for 2024 and 2025 bottom line imply 21.7% and 30% improvement year over year. The consensus mark for 2024 loss has narrowed from $1.43 per share to $1.37 over the past 30 days. For 2025, the consensus estimate for loss per share has narrowed from $1.03 to 96 cents.

Should You Buy NIO Stock Now?

Considering the positive factors discussed, NIO is certainly a stock to keep in your long-term investment portfolio. However, following a substantial rise in its share price over a short period, it appears the stock may have advanced too quickly. Currently, it trades above the Zacks average price target of $6.01 per share.

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From a valuation perspective, NIO's price-to-sales ratio stands at 0.81, which is higher than the industry average of 0.58, indicating that the stock is not particularly attractively valued at current levels. NIO currently has a Value Score of F.

Therefore, if you are considering buying NIO shares at this time, it may be wise to wait for a more favorable opportunity.

NIO currently carries a Zacks Rank #3 (Hold).

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