Chinese electric vehicle (EV) manufacturer NIO Limited (NIO) posted an all-time high on Monday after announcing a partnership with NVIDIA Corporation (NVDA) to develop a new generation of self-driving vehicles. NVIDIA's DRIVE Orin system-on-a-chip will power E7 sedan technology and is scheduled to first appear in 2022. The news triggered immediate upgrades at BoA Securities and JPMorgan, with enthusiasm then dampened by the announcement of a $1.3 billion debt offering.

Key Takeaways

  • NIO stock has rallied to an all-time high after announcing a partnership with NVIDIA.
  • 2020 vehicle deliveries rose an impressive 121%.
  • The company has gone to the capital markets four times to address persistent quarterly losses.
  • Price action is reaching the upper end of Wall Street price targets.

The company also announced a new ET7 version with a more powerful battery pack, offering a drive range of over 620 miles. Deliveries of all models rose 8% in December, with 7,007 vehicles finishing up a 121.0 % year-over-year increase. The company ran into a roadblock in the first quarter when the pandemic first hit China but has posted excellent results since the second quarter, delivering 43,728 vehicles in total and 17,353 in the fourth quarter.

The bond offering marks the fourth time that NIO has put out the begging bowl because it continues to lose money, posting a $154 million net loss in the third quarter. This has prompted cautious calls, but Wall Street consensus on NIO stock continues to improve, with a "Moderate Buy" rating based upon seven "Buy" and five "Hold" recommendations. Even so, the stock may be overvalued, with price targets ranging from $30 and $75, while it is set to open Tuesday's session just $12 below the high target.

The debt market, or bond market, is the arena in which investment in loans are bought and sold. There is no single physical exchange for bonds. Transactions are mostly made between brokers or large institutions, or by individual investors.

NIO Daily Chart (2018 – 2021)

Chart showing the share price performance of NIO Limited (NIO)

The company came public on U.S. exchanges at $6.00 in September 2018 and entered an immediate downtrend, posting lower highs and lower lows into October 2019's all-time low at $1.19. Modest buying interest reached $5.65 in January 2020, just before the COVID-19 outbreak in Wuhan, China, triggered a major lockdown. The stock posted a higher low at $2.11 in March and turned higher into the second quarter, completing a round trip into the first quarter peak in June.

The rally mounted the IPO opening print in July and the 2018 high a few sessions later. Price action then eased into a rising channel that suggests growing institutional sponsorship and has traded within those boundaries for the past seven months. The rally had to overcome just one high-volume selling event, in November, yielding a six-week trading range that matched overbought technical readings.

Range-bound action into January worked off those extremes ahead of the breakout, which could reach the upper end of analyst predictions quickly. Additional gains may require more bullish commentary, which is possible after the well-received NVIDIA partnership. Even so, revenue from the hook-up will not hit the bottom line until 2022, at the earliest, and NIO still needs to prove that it can make money without endless assistance from the capital markets.

An institutional investor is a company or organization that invests money on behalf of other people. Institutional investors often buy and sell substantial blocks of stocks, bonds, or other securities and, for that reason, are considered to be the whales on Wall Street.

The Bottom Line

NIO stock rallied strongly in 2020, taking advantage of Tesla, Inc.'s (TSLA) historic rally, but the Chinese EV manufacturer is now moving under its own power, reporting impressive vehicle sales and engaging in key partnerships that will generate innovative products into the middle of the decade.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.