NIO Stock Finds Support as Fundamentals Quietly Improve

During the years of low interest rates and abundant liquidity in the stock market, roughly from 2020 to 2023, a few names were at the top of every investor’s watchlist. As it turns out, through every cycle, these names eventually come out of favor when the cycle for credit and money markets swings back around to being more expensive and less available, which throws the same popular names down the list of priorities.

Even though these out-of-favor stocks might see their stock prices go lower and quiet for a little while, sometimes their fundamentals keep pushing higher under the radar and the broader macroeconomic perspective that would send them to much higher prices during a better credit and money market cycle. 

Today’s market creates an example like this in the automotive sector, though this one comes from China, the other side of the world.

Shares of NIO Inc. NYSE: NIO hit an all-time high valuation during 2021, to connect the dots on this cheap money and abundant liquidity cycle optimism that spreads all over certain stocks with enough fundamental reasons to send them higher. However, after 2021, the stock was cut in half, and then cut in half again a few more times to let it sit at the same range for the past 12 months, though that might be about to change in the coming quarters.

Finding a Bottom For NIO Stock

Even though shares of NIO have fallen by as much as 24.8% over the past 12 months, this bearish path seems to have ended. There are a few factors that investors can take into account to build on this belief. Starting with a zoomed-in view of performance, a 10.6% rally over the past month could turn a long-term selloff into a short-term bottoming.

More than that, it seems that short sellers have started to realize that today’s stock price in NIO has potentially priced in the worst-case scenarios for the company and China’s stock market in general. Over the past month alone, as the stock began to rally, the company’s short interest declined by as much as 6.4%, showing the beginning of bearish capitulation.

However, savvy investors will likely require much more than just price action and some short sellers closing their positions as they see the stock start to rally over the past month, there must also be a mix of fundamental reasons to back a potential buying thesis that bets against the long-term bearish trend that NIO has gone under.

Fundamentals Back a NIO Rebound

Even though the economy is not looking great in China, which is arguably going through a declining or even recessionary cycle currently, spending habits have not left the electric vehicle scene. The latest quarterly earnings report from NIO showed that vehicle sales for the fourth quarter of 2024 rose by 13.2%.

Not only did sales increase, but gross profit margins also increased as a result of economies of scale being achieved at the company. This enabled NIO to report a much higher margin of 11.7% compared to 7.5% for the same quarter last year. This higher margin is also a proxy for the company’s pricing power and ability, despite a tough economic environment.

With this in mind, NIO is creating a scenario where its future operating earnings might take a similar path, which will inevitably end up showing in the bottom line earnings and, therefore, valuations in the stock price. That is exactly what is meant by fundamentals quietly expanding while stock prices remain compressed, such as they are today.

On a more recent note, NIO released its delivery numbers for the month of April 2025, showing up to 23,900 units to represent an astonishing growth rate of as much as 53% on an annual basis, again not something that is synonymous with an economy that is as bad as everyone makes it to be in China.

Markets Agree on a Higher Price

All of these factors might have played a role in today’s $5.05 consensus price target set for NIO stock, which, compared to today’s prices, would imply a net upside potential of as much as 26.2%.

Ultimately, one of the big reasons the stock is kept this low today is the effect of President Trump’s trade tariffs, primarily focusing on Chinese goods. However, it is crucial to remember that NIO mainly serves its Chinese domestic market and some Asian and Latin American regions.

Therefore, there is truly no reason to worry about the impact of tariffs on NIO’s economics and stock price, only in the sense that a broader worry might hurt its sentiment and keep the stock price compressed for a little longer. However, the endgame in NIO remains the same, with higher prices being the set norm.

Before you consider NIO, you’ll want to hear this.

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