NIO Stock Jumps Again. Here Are 3 Reasons Why.

By Al Root

Jan. 7, 2021 4:01 pm ET

NIO’s limited-edition EP9 electric sports car.

Getty Images

Stock in Chinese electric-vehicle maker NIO is on the move again. It isn’t always easy to spot why, but there are three likely reasons. Two of them matter. One doesn’t.

For starters, there are reports of NIO (ticker: NIO) using an iron-phosphate battery in a new sedan. It sounds like big news, but it isn’t. Tesla (TSLA) uses an iron-phosphate-based lithium-ion battery for its Model 3 in China. Iron-phosphate batteries are cheaper than cathodes, which use cobalt or nickel, both more expensive metals.

NIO wasn’t immediately available to comment on the reports. NIO’s ES6 model was launched with a nickel-cobalt-manganese battery.

Iron-phosphate batteries sacrifice some range. They are less energy-dense. The decision about batteries comes down to cost and marketing and product positioning. Iron phosphate isn’t a new technology.

The second is reason is NIO’s new sedan. New sedans are a big deal, and NIO is hosting an event Saturday to launch one. That event should move the stock for days. Analysts and investors are eager to see what’s next for NIO, and traders are positioning themselves in NIO stock ahead of the event.

The company’s three main existing models are all SUVs.

NIO shares closed up 7.5% on Thursday, at $54.28. They are getting very close to their 52-week high and record closing price of about $57 and $55, respectively, set in late November. Breaking out to new highs is a bullish sign for traders. Call it reason No. 3. The S&P 500, meanwhile, was up about 1.5%.

Barron’srecently wrote that NIO stock was too expensive. We still feel that way. NIO has a lot going for it, but the company is valued at roughly 16 times estimated 2021 sales. That’s a lot, and it makes NIO one of the four most-valuable auto makers in the world. EVs are important, but NIO has only delivered about 76,000 vehicles over its entire existence. The margin of safety in NIO stock, to us, looks small right now.

We wrote that in mid-December. NIO shares have gained almost 30% since then. The trading in EV stocks is breathtaking, and we are on the wrong side of that bet right now.

Analysts feel a little differently. About 60% of analysts covering NIO rate its shares Buy. The average Buy-rating ratio for stocks in the Dow Jones Industrial Average is 57%. Though analysts are bullish, recent gains have pushed the stock past the average analyst price target of about $50.