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The future of car ownership is changing fast and Nio (NASDAQ:NIO) is leading the way. An automobile manufacturer based in China, Nio focuses on producing electric autonomous vehicles.
Nio’s self-driving electric SUVs are currently available for preorder. Priced at about $52,000 for the ES6 and $65,000 for the ES8 SUVs, they cost considerably less than Tesla’s (NASDAQ:TSLA) comparable Model X SUV that will set a buyer back around $80,000.
Nio’s innovative ideas and belief that cars will soon be a mobile living space make Nio an exciting player in the auto technology sector. The company launched its 100 kWh battery with flexible battery upgrade plans on November 6, 2020. This is significant since Nio EVs operate on battery replacement in lieu of regular charging.
How to Invest in Nio
Nio designs, jointly manufactures and sells smart electric vehicles with a focus on artificial intelligence and autonomous driving. The company is also committed to the idea of a more environmentally friendly vehicle, leading to a sustainable future if enough people jump behind the movement — and the wheel of a Nio ES6 or 8. If this appeals to you, investing in Nio now may be in your best interest if you don’t mind the risks.
If you’re looking to invest in Nio without involving a broker, you can explore a few roads:
- Direct stock plan: These plans allow smaller investors to buy ownership directly from the company itself. Investors buy in simply by transferring money from their bank account, often for lower than the price of a single stock, meaning investors without a lot of capital can buy fractional shares of a company.
- Dividend reinvestment plan: While this plan is similar to a direct stock plan, the company automates the process of buying more stock over the years, usually 4 times per year. This is usually a free service or comes with a small commission fee.
While it may seem like less of a hassle to skip the middleman, brokers are actually a safer and cheaper option to go with. You might be asking what an online broker is. They’re the ones who facilitate the stock purchase, giving you a convenient place to place orders, check quotes and make fast trades.
Once you pick a broker, you’ll need to open an account. This may require some personal information and proof of funds. You will also need to provide a method for the funding, including wire transfers and electronic fund transfers.
Just remember that most brokers charge brokerage fees, including flat trading fees and accounting fees. Some online brokers do now offer commission free trading that would allow you to buy Nio American Depository Receipts (ADRs). These special receipts trade on the NASDAQ stock exchange and allow U.S. residents to purchase foreign stocks otherwise unavailable to U.S. investors.
Pros to Buying Nio Stock
Nio is all about building the car of the future. With so many scientists looking for ways to step away from fossil-fueled vehicles, Nio might become a big player in the game because this is an avenue consumers are starting to explore. Nio offers direct competition to Tesla and other electrical vehicle (EV) manufacturers.
Nio stock surged more than 12% on Monday, January 4, 2021, after the company reported record monthly, quarterly and yearly numbers for deliveries at the end of 2020. The company reported it had delivered a record 7,007 EVs in December of 2020 and a total of 43,728 EVs for the year.
This represents an increase of 121% of year-on-year growth for the monthly figure and 113% for the yearly figure. The company also announced it would release a new sedan model and details of the company’s recent developments in autonomous driving technologies on January 9, 2021. Also, Nio’s quarterly deliveries rose to 17,353 EVs, an increase of 111% year on year.
China is a big supporter of electric smart cars. The government reduced the subsidies for new energy vehicles late last year, hoping only the “strongest would survive” without government granted funding. While China was mired in the coronavirus outbreak in February of 2020, Nio announced it was in talks with the Hefei city government, a city in southeastern China, which later resulted in a lifeline of $7 billion yuan or approximately $1.4 billion from investors that included state funded entities.
Cons to Buying Nio Stock
China has a large market for EVs, with 5% of the domestic automobile and SUV market, but the market is highly competitive since Nio is one of over 400 new energy vehicle manufacturers registered in China. Many of these companies struggled during the coronavirus outbreak due to lack of sales and interest.
Despite a recent surge in Nio’s stock price, the company is far from profitable at the moment. To illustrate, the company’s gross trailing twelve month (TTM) gross profit margin is just 3.83%, which is -88.5% lower than the EV sector median of 33.32%. The company’s TTM net income margin is a negative -56.25%, compared to an industry median of +2.12%. Also, the TTM return on common equity is a whopping -314.06%.
Nio also reported 3rd quarter earnings of a negative -$0.14 per share that bested an analyst consensus of -$0.17. That was on $666.60 million in revenue, which also beat the analyst revenue consensus of $628 million. The next earnings release for the company is expected on March 17th, 2021.
While Nio is innovative, and its products are promising and exciting, they have several competitors sharing the spotlight, including Tesla, Inc., Li Auto (NASDAQ: LI), Xpeng (XPVE) and Geely Automotive (NASDAQ: GELYY). While electric vehicles are definitely in vogue, it seems like the public may not be ready for cars that drive themselves.
Another consideration you should keep in mind is the current relationship the U.S. has with the Chinese government after the COVID-19 pandemic. President Trump recently ordered the New York Stock Exchange (NYSE) to delist the stocks of China’s 3 largest telecom companies.
The NYSE responded by originally agreeing to delist the stocks, although on January 5, 2020, the exchange reversed its decision and now says that it no longer plans to delist the Chinese telecom stocks. To avoid this type of risk, you may want to hold off on investing in Chinese stocks until U.S.- China economic relations improve.
History of Nio’s Stock Price
Nio issued 88.5 million ADRs and sold them at $17 per share in August of 2020. At the time, the ADRs were sold at an 8% discount to the prevailing market price of Nio stock. At $17 per share, the stock had already rallied significantly from its 52-week low of $2.11 per share.
Taking advantage of the strength of its stock, Nio issued an additional 68 million ADRs on December 17, 2020 at $38 per share. The company plans on using the additional funds to expand their service network and for the research and development of new products.
NIO currently trades at $37 and is below its all-time high of $66.99. The shares are up 117% over the past year. The stock’s 52-week range is $2.22 to $66.99, which shows price volatility. The stock has rallied during the pandemic and pulled back from its all-time high earlier in the year by 44.7%.
How to Choose the Best Broker for You
It can be stressful when you don’t know where to begin. How do you even invest in Nio? How do you know how much to invest? A broker can help, but you need to find a broker that matches your investment style best. You should also look for a brokerage firm that charges the least amount of money for the services you’re most interested in.
Compare all the costs of buying, selling and holding stocks through a broker. Remember to compare commissions as well as margin interest and other fees.
At Benzinga, we can help you find the best stock broker, making the whole process easier to understand and navigate.
Nio: A Rocky Road Ahead
Nio’s future isn’t as smooth as a ride in one of its electric vehicles, despite the astronomical increase in its share value this year.
As Nio’s stock trades near its all-time highs, you would probably be wise to wait for a pullback in the near future if you plan on investing in it. Keep in mind that U.S. trade relations with China remain stressed, and the COVID-19 pandemic shutdowns and their resulting adverse economic impact have dampened consumer demand for expensive products like vehicles.
As the proposed delisting of Chinese telecom companies demonstrates, there may be more risk in buying Chinese stocks like Nio than is readily apparent. Make sure you understand these risks before investing any funds you cannot afford to lose in this company.
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