Red-hot premium Chinese electric vehicle maker Nio (NYSE:NIO) recently reported blockbuster third-quarter numbers which broadly underscored that the NIO stock growth narrative is firing on all cylinders today.
Triple-digit delivery growth. Triple-digit revenue growth. Robust margin expansion. Net loss narrowed significantly.
Head to toe, it was a great print. Yet, Nio’s stock dropped after the earnings release.
Time to freak out?
Hardly. NIO is just taking a breather after surging 2,410% higher over the past year.
This “breather” period will end shortly. Once it does, NIO stock will get back to its winning ways, because the company’s strong earnings report confirms that the underlying fundamentals provide runway for NIO to $150 over the next few years.
So, buy NIO on any big weakness here. It’s near-term weakness in a long-term winner with tons of upside potential.
Here’s a deeper look.
Nio’s Blockbuster Earnings
Don’t let the negative stock reaction fool you. NIO’s third-quarter earnings report was sensational.
The top-line numbers were flawless, and broadly paint a picture of a company with jaw-dropping momentum right now. Deliveries rose 154% year-over-year to record-high levels. Average sales price on those vehicles rose 2%. Total revenues rose nearly 160% year-over-year, also to a record-high.
Moving down the income statement, the margin numbers were also flawless, illustrating that economies of scale is kicking in and that NIO will follow in Tesla‘s (NADSAQ:TSLA) footsteps to reach sustained profitability. Gross margins made an impressive swing from -12% in the year ago quarter, to +12% in this quarter, while operating loss continued to significantly narrow towards the flatline.
The guide implied that all of these favorable trends will persist in Q4. It calls for another quarter of triple-digit delivery growth, triple-digit revenue growth, and meaningful profit margin expansion.
All in all, it was a great quarter.
The Tesla of China
The great quarter from NIO confirms that this company is emerging as the Tesla of China.
Long story short, NIO makes the best luxury electric vehicles in China with market-leading driving range and performance specs. NIO sells those cars under a great brand which has become synonymous with “cool” and “luxurious” in China. And, NIO’s price tag on those cars is surprisingly affordable (in the $50,000 to $80,000 range) because of the company’s genius battery swapping business model which removes the cost of battery ownership for consumers.
In other words, NIO is doing in China, what Tesla has already done in the U.S.
Sell the market’s best EVs, with a great brand, at great prices, at a time when consumer demand is shifting in favor of EVs. It’s a winning combination which propelled Tesla to the automobile mountain top in the U.S. It will similarly propel NIO to the automobile mountain top in China.
That’s a particularly attractive value proposition, because by extension of having over a billion people, China is home to the world’s largest auto market.
NIO is on track to dominate the EV segment of that enormous auto market at scale — a reality which bodes well for NIO stock.
Significantly underrated in the NIO growth narrative is the company’s international expansion potential.
To-date, everyone has focused on NIO’s potential to dominate the enormous Chinese EV market at scale. The company will do that. But the company will also find great success in expanding its retail footprint in North America and throughout Europe.
NIO will do this simply because they can.
That is, when it comes to making EVs, Tesla is 1A, NIO is 1B, and everyone else is so far behind it’s actually mind-boggling. NIO and Tesla cars regularly get 300-plus miles of driving range, recharge very quickly, go from 0-to-60 miles per hour in a few seconds, feature a 100 kWh battery pack, and have a 150-plus miles per hour top-speed.
Those specs are simply unmatched across the EV space.
So, if NIO does decide to start selling its EVs in the U.S. and throughout Europe, the company will find great success in doing so.
Of course, the implications of NIO going global are enormous for NIO stock.
$100 Prices Next?
My numbers suggest that the next stop for NIO is $150.
I believe that NIO can control ~8% of the Chinese EV market by 2030, equivalent to the company controlling about half of the luxury market and then a small portion of the rest of the market. I also believe that NIO can control ~4% of the global EV market excluding China, broadly meaning NIO will be half as successful selling its cars outside of China as they are selling them inside of China.
Those seem like very fair assumptions.
On those assumptions, my modeling suggests NIO will do 1.5 million deliveries, over $60 billion in revenues, and about $7.50 in earnings per share by 2030.
Based on a 20X forward price-to-earnings multiple, that implies a long-term price target of $150.
Bottom Line on NIO Stock
Forget the earnings selloff. NIO is a long-term winner. Any and all near-term weakness in this emerging, hypergrowth EV maker is a buying opportunity.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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