Nio Shares Catch Fire: 4 Catalysts Driving The EV Stock

Chinese electric vehicle maker Nio Inc – ADR (NYSE: NIO), which is considered a credible challenger to Tesla Inc (NASDAQ: TSLA), has seen its shares rally strongly in recent sessions.

The stock has taken off Monday, trading at its highest level since mid-September 2018. 

The following are four catalysts driving the rally in Nio shares. 

Optimism Over EV Market Fundamentals: The need to cut down on emission norms, governmental rules and the improvement seen in EV infrastructure and technology have been fueling demand.

The outlook for these environmentally friendly vehicles remains bright. 

Passenger EV sales, which climbed from 450,000 units sold in 2015 to 2.1 million in 2019, are likely to drop to 1.7 million in 2020 as COVID-19 impacts demand, the Bloomberg New Energy Finance estimates.

Yet sales are expected to rebound thereafter and reach 8.5 million units in 2025, propped up by falling battery prices, an improvement in energy density, expansion in charging infrastructure and increased adoption.

The year 2022 will mark a tipping point for the auto industry, when the cost of ownership of a battery electric vehicle breaks even with the internal combustion engine, making EVs a viable option for a new car buyer, Deloitte said in a report.

Improvement In Nio's Fundamentals: After the pandemic hurt Nio's resurgent sales in the first two months of the year, the company sprang back to life thanks to its multipronged approach.

The company's focus on technology and service has brought customers back, as seen in the rebound in sales.

Last week, the company reported record monthly and quarterly sales for June.

Nio's Funding Deals: Nio, which operates in a cash-intensive sector, was seriously short of cash for much of 2019.

Through private placements and fund infusions by strategic investors, it has managed to shore up its cash position.

Extension In Chinese Government Subsidies: China, which was originally planning to wean customers away from subsidies by 2020, announced a two-year extension through the end of 2022.

The government also made a 10% cut to subsidies this year and also limited the scope of subsidies to EVs costing less than 300,000 yuan ($42,750). 

EVs with swappable batteries were exempted from this price ceiling, which is a positive for Nio.

NIO Price Action: Nio shares broke out of the $6-$8 range July 2 following the second-quarter delivery update. The stock jumped 18.6% in the session before settling at $9.38.

The momentum has carried through into Monday, with the stock higher by 22.4% at $11.48 at the time of publication.

This represents the best level since the $13.80 level the stock hit Sept. 14, 2018, two days after it debuted on Wall Street.

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Photo courtesy of Nio.