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The Zacks Analyst Blog Highlights: Tesla, Amazon, Netflix and NIO

Zacks Equity Research
·7-min read

For Immediate Release

Chicago, IL – December 4, 2020 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Tesla, Inc. TSLA, Amazon.com, Inc. AMZN, Netflix, Inc. NFLX and NIO Limited NIO.

Here are highlights from Thursday’s Analyst Blog:

Is NIO on Strong Footing to Tap China's EV Breakthrough?

Talking of electric vehicles (EVs), the first name that comes to our mind is Tesla. This EV pioneer transformed the e-mobility space much the same way as Amazon changed the retail landscape and Netflix revolutionized the domain of entertainment.

While Tesla still remains the global leader with respect to electric cars, a number of automakers are following suit by swiftly changing gears to electric vehicles. Thus competition in the EV space is intensifying with each passing day. Banking on the green revolution and taking cues from Tesla’s success, Chinese EV maker NIO is fast emerging as a rising star in the EV space.

China’s EV market is on a roll with domestic manufacturers accounting for more than 50% of worldwide EV deliveries. On the back of supportive government policies, extension of subsidies for electric cars and a robust EV supply-chain network, industry watchers are super optimistic about the country’s transition to green future.Importantly, China’s EV penetration is likely to grow five-fold by 2025. The country, which is already the biggest market for e-mobility, expects demand for green vehicles to jump to 25% of new car sales within2025. NIO seems to be well-placed to secure a strong long-term foothold in the rapidly-evolving EV industry. 

Often touted as China’s Tesla, shares of NIO have been on a tear for a while now. On a year-to-date basis, the stock has skyrocketed a whopping 1,093.6%.

Why We Like the Stock?

Rising Deliveries Boosting Revenues: NIO currently offers three premium electric SUVs, namely ES8, ES6, and EC6. The company delivered 36,721 vehicles in the first 11 months of 2020, surging 111.1% year over year. In the last reported quarter, NIO posted revenues worth$666.6 million, up 146.4% year over year. The top line also surpassed the consensus mark of $628 million on sturdy deliveries.

As the company is focused on scaling up its production, its vehicle margins are improving gradually. The vehicle margin was 14.5% in the last reported quarter versus a negative 6.8% in the year-ago period. The company rebounded to a gross profit of $83.6 million from the year-ago period’s gross loss of $221.6 million.

Upbeat Prospects: NIO expects fourth-quarter deliveries in the band of 16,500-17,000 vehicles, indicating nearly a1 03% rise at the mid-point of the guided range. Revenues are projected between $921.8 million and $947.9 million, indicating a rise of 103% from the reported figure in the corresponding quarter of 2019.

Gross margin is also expected to expand owing to whopping sales and healthy vehicle margins. The Zacks Consensus Estimate for 2020 and 2021 sales suggests an uptick of 110.7% and 93.9%, respectively, from the year-ago reported numbers.

BAAS Strategy a Game Changer: NIO’s battery swap technology provides an edge to the firm over peers. Management claims that a battery pack can be replaced in the vehicles in about three minutes. The technology, which is part of NIO’s BAAS (Battery-as-a-Service) strategy, helps saving time when charging an EV and alleviates range anxieties. In October, it was announced that NIO Power completed more than 1 million battery swaps, thereby becoming one of NIO’s most well-received power services.

Government Support a Lifeline: The firm’s strong standing with the government of China offers it a huge advantage. In the beginning of 2020, NIO suffered a cash crunch and was on the brink of filing for bankruptcy amid the COVID-19 outbreak in China. However, the firm has come a long way ever since. After amassing around $1 billion in new financing from China’s economic development authorities in April, risks of insolvency are no longer pertinent.

NIO managed to shore up its cash position via private placements and fund injections by strategic investors. China-based Internet behemoth Tencent Holdings has been making investments in the EV maker over the past few years. In June, it increased its stake in NIO to 15.1%. The funding deals indeed breathed a new lease of life into the stock.

Can NIO Give Tesla a Tough Competition on Its Home Turf?

China’s e-mobility revolution is a major catalyst for NIO, which is leaving no stone unturned to ramp up its output and capture the burgeoning EV market. However, NIO is a relatively newer and smaller brand when compared to the red-hot EV maker Tesla. Moreover, Tesla claims the lion’s share of China’s flourishing EV market, riding on the high popularity of its Model 3 SUVs and solid production prospects in Shanghai Gigafactory. Recently, the firm also procured an official permission to start selling its Shanghai-made Model Y in China.

Tesla has been actively capitalizing on fueling demand for electric cars in China, which has been the firm’s fastest-growing international market. In fact, 40% of the company’s sales could be concentrated in China by 2022.While Tesla enjoys the first-mover advantage and is much bigger and a more well-established brand, we don’t believe that NIO can pose a serious challenge to Tesla.

Last Words

Markedly, NIO’s weak balance sheet and mounting operating expenses pose concerns. However, the company is still in the development stage and that’s the case with most EV makers. Indeed, the EV hype is being zealously priced into stock, pushing the valuation to staggering levels.

But NIO surely has a lot of factors working in its favor that make it a good pick for the long haul and position it well to cash in on China’s EV boom. It’s just that one could wait for a better entry point to grab the stock. NIO currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

These Stocks Are Poised to Soar Past the Pandemic

The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.

Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.

See the 5 high-tech stocks now>>

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Zacks Investment Research

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.


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