What happened

Shares of NIO (NYSE:NIO) rose 1,110% in 2020, according to data from S&P Global Market Intelligence. The Chinese electric-vehicle (EV) company's stock soared thanks to signs of incredible momentum and long-term growth potential for the industry.

NIO Chart

NIO data by YCharts

Momentum built for NIO stock amid signs that the Chinese government would make a powerful push to transition the country to electric vehicles. The company also posted strong vehicle delivery numbers, and its monthly delivery updates across last year showed impressive growth for the business. 

A NIO ES8 SUV.

Image source: NIO.

So what

NIO delivered 7,007 vehicles in December (up 121% year over year), bringing the company's total delivery count for the year to 43,728. Its vehicle delivery count for 2020 represented an annual increase of roughly 112.6%.

Government subsidies for EV buyers have helped accelerate the growth of the industry in China, and contributed to substantial momentum for NIO. Purchase subsidies were also tied to performance metrics that should correspond with reduced pollution, and NIO vehicles generally performed well in the relevant categories. However, China's Ministry of Finance recently cut subsidies by 20% for 2021 in response to signs of improving organic adoption for EVs, and it remains to be seen how this might impact momentum in the short term.

Now what

NIO stock has continued to make gains early in 2021. The company's share price is up roughly 12% in January's trading so far. 

NIO Chart

NIO data by YCharts

China has a population of roughly 1.4 billion people, presenting a massive addressable market for NIO in its domestic market alone. The EV market has been expanding even faster in China than in the U.S., and there's still a huge runway for growth. However, investors also have to keep valuations in mind -- as well as the likelihood that an influx of competition may limit growth opportunities for industry leaders that have enjoyed explosive stock gains. 

NIO has a market capitalization of roughly $84.6 billion and is valued at approximately 18 times this year's expected sales.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.