A Long-Term Catalyst Will Push Nio Over $25

Investors in the Chinese electric vehicle (EV) maker Nio (NYSE:NIO) stock have not had a good start to 2022. NIO stock has gone down by 27.9% since the start of the year and is down about 50% over past 12 months.

NIO stock: A shot from the outside of a Nio display room at night.
Source: Robert Way / Shutterstock.com

What a difference a year has made for Nio shareholders. At the end of February 2021, the stock was changing hands around $45. Now, it is around $22. Nio came under pressure due to the heavy hand of Chinese regulators felt by domestic tech names, as well as shares listed in the U.S.

Meanwhile, the S&P Kensho Electric Vehicles Index dropped 14.5% year-to-date (YTD) and 26.5% in the past year. And Tesla (NASDAQ:TSLA) shares are down 17.6% so far in 2022, but up 33% in the past 52 weeks.

All in all, 2021 was a blockbuster year for the EV industry. Despite supply-chain headwinds such as the chip shortage, global sales of plug-in vehicles soared 108% year-over-year (YOY) to hit 6.75 million units in 2021. China is the top-performer with over 3.3 million EVs sold last year.

Given the company’s solid standing in China and the rosy future of the EV industry, NIO appears to be a good long-term bet. Yet, the stock will likely continue to see large price fluctuations while the company grows into its valuation. Investors with a long-term horizon might want to buy the dip, especially around $20 or below.

Nio’s Recent Quarterly Results

Founded in 2014, NIO is still in the high-growth phase. It has made a recent move into Norway and it is expanding more operations outside China, as well. Management wants to differentiate the EV group through its battery swapping solutions, Battery as a Service (BaaS), and Autonomous Driving as a Service (ADaaS).

Third-quarter financials released in early November showed a 116.6% year-over-year (YOY) surge in revenues of 9.80 billion RMB, or $1.52 billion. However, operating expenses almost doubled and net losses increased to 2.86 billion RMB, or $443.7 million, up over 140% from the previous-year quarter. Meanwhile, cash and equivalents ended the quarter at 21.6 billion RMB, or $3.35 billion.

According to the January 2022 update, the smart EV maker delivered 9,652 vehicles in January, up 33.6% YOY. As of Jan. 31, total deliveries of the company’s three models, ES8, ES6, and EC6, reached 176,722 units. However, investors were not fully impressed with Nio’s delivery metrics.

On the other hand, Nio bulls are likely to know about the previously announced luxury sedan ET7 and the mid-size ET5 launches. At a marketing event at the Nio House Shanghai MIXC, management recently introduced their new 5-seater mid-size SUV, the ES7.

Management is expected to release the fourth-quarter report in early March. Therefore, we could see increased volatility in Nio shares in the near future. 

Adding NIO Stock to Portfolios

Among 27 analysts polled, NIO stock has a “buy” rating. Also, the consensus of 26 analysts for a 12-month median price target stands around $52.28, implying an upside potential of around 137% from current levels. Meanwhile, the 12-month price estimates range between $31.08 and $88.02.

Nio’s price-to-sales (P/S) and price-to-book (P/B) ratios stand at 6.16x, and 8.63x, respectively. These valuation metrics imply that Nio currently does not have a frothy valuation.

By comparison, its Chinese rival Xpeng (NYSE:XPEV) currently changes hands at 15.41x sales and 4.32x book value. Meanwhile, Tesla trades at a P/S ratio of 16.99 and a P/B of 27.73x.

According to the think-tank China EV100, new energy vehicle (NEV) sales in China should reach 5 million units this year. This growth is mainly due to the Chinese government’s efforts to become carbon-neutral by 2060.

Given the long-term potential of the industry, buy-and-hold investors need to keep Nio stock on the radar. A decline to $20 could be seen as an opportune entry point. When momentum turns positive, shares would likely make a rapid attempt at $25.

Potential investors could also consider buying an exchange-traded fund (ETF) that holds NIO stock. Examples include the First Trust NASDAQ Clean Edge Green Energy Index Fund (NASDAQ:QCLN), the Invesco Golden Dragon China ETF (NASDAQ:PGJ), the KraneShares MSCI China Clean Technology ETF (NYSEARCA:KGRN), and the VanEck Low Carbon Energy ETF (NYSEARCA:SMOG).

The Bottom Line on NIO Stock

Despite global pandemic-related disruptions and regulatory woes in China, Nio has been growing operations. For instance, in January, the company deployed its first firmware over-the-air (FOTA) update outside China.

The Aspen 3.0.5 NO is exclusively developed for Norway. It brings 199 new features and 401 enhancements to the smart operating system based on the NIO Technology Platform 1.0 (NT1.0).

Also, in an effort to expand its battery power, sales, and service network, NIO has, so far, built “836 Power Swap stations, 3,766 Power Chargers and 3,656 destination chargers, and opened 42 NIO Houses, 341 NIO Spaces, 55 NIO Service Centers and 180 authorized service centers across China.”

Considering its potential growth trajectory and increasing market penetration worldwide, Nio is well-poised for further gains in the years ahead. However, the performance of NIO stock’s performance is likely to remain volatile this year.

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.


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