What Does 2022 Hold for Nio?

Nio (NIO) is currently trading at an attractive valuation compared to most other EV startups in the United States. The stock rose to fame in 2020 when it became one of the top performers on NYSE, with nearly 1,100% returns for its investors. 

The stock has gone south and has lost more than 50% of its value over the past year. Instances like politicized delisting anxieties amongst investors, fears from rival XPeng, inflation,and other COVID-related bottlenecks have led to the stock’s decline. 

However, we feel Nio has tremendous long-term upside potential despite the fact the stock might continue experiencing high volatility because the competition in the global EV market is heating up. We’re bullish.

Nio is a leading China-based EV company that is primarily engaged in designing, developing, manufacturing, and selling smart EVs. It presently sells three models, namely the ES8, which is a six- or seven-seat SUV; the ES6, which is a five-seat SUV; and the EC6, which is a five-seat coupe SUV. Further, it is expected to start delivery of the ET7, a luxury sedan, by the end of March this year.

Many investors are skeptical about investing in Chinese stocks because of some political and regulatory challenges that occurred in China last year. They have made investments in Chinese stocks a risky affair. 

Nio has grown significantly over the years since its founding in 2014. Despite these regulations, Nio stock still appears to have quite good prospects in the future. Its share price is also currently well below its all-time highs.

Exploiting EV Boom

The global EV market has grown tremendously in the past decade. Rising pollution levels and concern for the environment is pulling up its demand every day. Global EV sales have grown 43% from 2019 while the global electric car industry market share rose to a record 4.6% in 2020.  

China is becoming quite a lucrative market for EVs. This can be concluded from the fact that China alone accounts for 25% of the total market for EVs, and that it recorded one of the highest numbers of new EV registrations by area last year.

Nio, with its quality products, cutting edge technology, and a strong network of swapping and charging stations has done very well capitalizing on this rising demand. The company reportedly delivered around 10,500 vehicles in December, which is almost 50% higher compared to last year, and will be doubling its production capacity at Hefei Plant to 240,000 vehicles a year by mid-2022. 

To maintain its momentum in the market it has decided to launch newer models at regular intervals over the next two years. Further, this year Nio intends to deliver three new models based on its NT2.0 technology platform, and launch its ET5 midsize premium sedan in the month of September.

Nio is also going global this year and has ventures in Norway and five other European countries. 

Notable Improvement in Revenue

Nio has shown huge improvements in its vehicle sales, as per its third-quarter financials of 2021. 

The company reported vehicle sales of $1,340.4 million, representing a 102.4% improvement year-over-year, and 9.2% improvement quarter-over-quarter. 

Along with increasing sales, a huge 4% improvement in the margin level was also noticed. This might be because of the improved economies of scale it was able to achieve due to ramping up its production levels. 

However, despite such improvements in revenues, Nio is not profitable yet. Yes, the company was able to successfully reduce its net loss by 20.2% year-over-year in the third quarter of 2021, but when compared to the previous quarter its net loss showed a significant 42.3% increment instead.

NIO stock earns a Strong Buy consensus from TipRanks, based on eight Buys and one Hold assigned in the past three months.

The average Nio price target of $59.46 suggests 142% upside potential.

Regulatory Concerns

One of the main reasons why the market is showing uncertainty over Nio stock is because last year many Chinese stocks had to face regulatory concerns from the Chinese and U.S. governments. 

In China, the government had curbed the growth of several Internet, fintech, gaming, and education companies. Though no adverse regulations were drawn on the auto companies,’ in general the market is still skeptical about the next move of the Chinese government. 

In the United States, the Securities and Exchange Commission had decided to delist those Chinese Stocks that do not comply with strict new audit requirements, thereby creating even more regulatory uncertainty for the investors.

Nio seems to be a perfect bargain considering its attractive valuation, its current price, as well as the immense growth potential it offers to its investors.

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