NIO Rises To All-Time High Share Price After Ratings Upgrade & Bullish Trading

Aug 25
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Electric vehicle manufacturer NIO Inc (NYSE:NIO) took creative advantage of China's new electric vehicle subsidies as it announced the Battery as a Subscription (BaaS) service last week. The company, whose vehicle's are priced lower than Tesla Inc's in China, already allows its customers to swap their batteries instead of recharging them, with the service allowing its vehicles to have greater range than they normally would have, given the hindrances imposed due to China's underdeveloped charging network.

Following the announcement, Nio's stock picked up on a growth spurt that was maintained over the weekend and yesterday. Now, after investment bank UBS upgraded the stock to Hold, the company's shares have crossed their all-time high during trading today.

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NIO's Price Jump Mirrored By Extensive Options Trading For Company, With Investors Expecting Further Rises This Week

In a new research note, UBS analyst Paul Gong has not only upgraded NIO's rating, but the analyst has also significantly changed the bank's price target for the company. The company's previous price target at UBS was $1/share, far below the stock's actual trading price and the upgrade brings it at level with what the shares are currently trading at. The new price target is $16.30 and marks a roughly 16x change over the initial value.

This shift is based on NIO's recent capital raises that alleviate the bank's concerns for its balance sheet and strong margins and sales volumes demonstrated at its recent earnings call that improve NIO's fundamentals. Gong also states that he believes NIO will require more capital raises to effectively compete in the Chinese electric vehicle market.

This market, which is estimated to have stood at 1.2 million vehicles in 2019 is the focus of automakers all over the globe. NIO delivered roughly 10,000 vehicles in its second quarter of 2020 in a meteoric 191% year-over-year rise. The company has raised capital from the Chinese government and banks, after having agreed to certain conditions including a compulsion to set up its headquarters in the Anhui province. These terms also mandated NIO to initiate research and development through a subsidy based in the province.

The NIO ES8's 2017 launch in China. The company delivered 2,263 ES8's in its previous quarter.

As NIO's share price reaches new all-time highs, options trading for the company has also picked up the pace. Traders are focusing their attention on call options, which provide them with the right to purchase NIO's shares at a predetermined price dubbed as the 'strike' price at the end of a specified period. According to data viewed by The Fly, the total volume of options that expire at the end of this week with strike prices of $15 and $16 is roughly 45,000, with a total of 161,744 NIO call options trading thirty minutes after market open today. This demand increase for options is also reflected in a jump in NIO's implied volatility, which now sits at 94.45%.

NIO's BaaS program lets customers save on the initial price of their vehicle purchase, as they 'subscribe' to use its battery by paying a monthly fee. The program brings down vehicle prices by as much as 70,000 Yuan, and as a result, it allows NIO's vehicles to be priced below the 300,000 Yuan requirement set by the Chinese government. NIO's ES6 sports utility electric vehicle, which competes with Tesla's Model Y, has a pre-BaaS price tag of 358,000 Yuan with the 70,000 deduction bringing this down to 288,000 - a price that is further reduced to 273,600 Yuan after the subsidy reduction is applied.

This allows the ES6, which is an SUV, to compete with Tesla's Model 3 (a sedan) in terms of pricing and it offers customers an attractive option when making their purchasing decision. For NIO however, the big challenge will be to keep its output levels with China's burgeoning electric vehicle demand, for which it will require further capital injections as noted by the UBS analyst.

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