NIO (NYSE:NIO) shares recovered sharply after Tuesday’s sectorwide sell-off as investors looked ahead to next week’s earnings report. It recently closed at $51.86, fluctuating in a day’s range from $47.7501 to $52.07. Morgan Stanley has an Overweight rating on NIO’s shares and set an $80 price target.
NIO stock had taken a beat on Tuesday as the stock closed at $49.1 which was 3.1% lower. But it wasn’t just the NIO specifically, as major EV shares like Tesla (NASDAQ:TSLA), Xpeng (NYSE:XPEV) and Li Auto (NASDAQ:LI) have tumbled down as well.
What’s happening right now in the market?
NIO is China’s premium electric vehicle producing company that has been able to beat the market at exceptional odds in 2020; starting in January at $4 and finishing the year with a $50.2 mark. The year 2021 that started off hot for the Chinese EV company has now been seeing more than 9.53% slump of its value over the week.
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What’s causing volatility in NIO stock and EV market?
The reason behind the dip across the EV stock market is hard to pinpoint but an analyses of the external and internal contributing factors can be made. Observations suggest that NIO and other Chinese EV companies are following the bearish trend of Tesla stock. Tesla sets the lead as a benchmark EV company which is now taking a dip in the market.
Fear of inflation and rise in interest rate
Investors are worried about Interest rate and inflation, as the 10-year Treasury bond has risen from 1.1% in the start of the year to 1.37%. Higher interest rates cause investors to take reduce their risk exposures as investment activity becomes costly. Main reason for this rate being high is due to the excessive money in the shape of $1.9 trillion stimulus package is being pumped in the economy, which risks the fear of inflation. Some economists are of the view that this inflation is necessary to keep the economy running and will sustain for the long-term to fight off the effects of COVID-induced automation and job losses.
The Green Energy Hype
There is also a political reason in suggestion for the slump, as there has been hype in the green energy investments since the presidential election season as President Joe Biden has shown support for moving towards greener and sustainable energy. The hype may seem to be dying down and causing investors to pull back from the waves that led them to buying stocks in EV market.
NIO’s Fundamentals and Outlook
These external factors are suggesting volatility in the EV market but they contrast in comparison to the NIO’s sales and production outlook in the market. NIO has seen its fair-share of struggle in the beginning of 2020 due to the COVID outbreak. But it emerged from the brink of bankruptcy and quickly picked up the momentum throughout the year resulting in the doubling of its sales of up to 43,728 vehicles. The momentum pushed through the year of 2021 where in January it stood at a year-over-year rise in delivery/sales of vehicles, by a whopping +350%. NIO wasn’t alone in this amazing feat of triple-digit growth as the EV sales in China overall tripled in 2021. These sales and progress number make it evident that the dip in the stocks is being caused by the external volatility and that the fundamentals of the sales and growth of EV companies especially in China have very positive outlook in the long-term as the growth is not just sustaining but accelerating.
Analysts are positive about the fact that NIO can give a challenge to Tesla in its home-country turf, especially with the latest developments of the second generation batter-swapping stations-for its growth-driver EV vehicle EC6-set to be deployed in April. Furthermore, NIO’s highly-automated sedan, ET7 has been planned for arrival in early 2022, that will be featuring the first ever solid-state-battery promising a 600 mile range.
Buy the Dip and Ride it
The dip in the market is providing a really exciting and promising opportunity for investors to buy the dip as the sell-off due to market-volatility and fear is temporary.