• Nio (NYSE:NIO) announced on March 28 that it made its first batch of deliveries for the ET7, its fourth electric vehicle (EV)
• It’s the company’s first new vehicle to use its NT2.0 architecture
• Buy NIO stock because there are more vehicles on the way

Nio reported its fourth-quarter 2021 results last week. NIO stock fell on the news. Investors weren’t thrilled with the company’s timid guidance for  Q1 2022. That’s okay. 

On March 28, Nio announced that it had indeed begun deliveries of its ET7 luxury sedan to customers in China. Earlier in March, Nio had carried out test drives of a pre-production ET7 in more than 80 cities across the country. Orders based on those test drives have been higher than expected.   

This is the company’s fourth vehicle. It now has the ES8, ES6, EC6, and ET7 in production at its Hefei manufacturing plant.

While no specifics were given about order numbers for the ET7, investors can look forward to its Q2 2022 report sometime in July. By then the company will have a better idea about the ET7’s runway for growth. 

Nothing about the company’s Q4 2021 results should dissuade you from buying NIO stock. Not even its weaker than expected guidance.

The ET7 is the latest reason investors should buy NIO stock. Here are two reasons why. 

NIO

Nio Inc.

$20.96

NIO Stock and Q4 2021

The final quarter of 2021 saw Nio generate revenues of $1.55 billion, $30 million higher than the analyst estimate. Its deliveries were 25,034, 44% higher than last year, and 89 vehicles higher than the consensus. Of course, it’s still losing money. It lost $383.7 million in the fourth quarter, 162.5% higher than a year earlier but in line with analyst estimates. 

How were sales in fiscal 2021? It had vehicle revenues of $5.21 billion in 2021, 118.5% higher than a year earlier. More importantly, its vehicle margin increased by 740 basis points over 2020 to 20.1%, while its gross margin improved by 740 basis points to 18.9%.

CEO William Li said in their press release that 2022 would be a good year for sales:

“2022 will be a year of reacceleration for NIO. We will deliver three new products based on NIO Technology Platform 2.0 this year. In March, we kicked off the test drive of ET7 and will start its delivery on March 28, 2022,” Li stated on March 25. 

“After the launch of ET5 in December 2021, we have received great feedback from prospective users, and expect to start its delivery in September 2022. In addition, we plan to offer our products and services in more countries and regions in 2022 to further expand our global user community.”

Based on total revenues of $5.67 billion, NIO is trading at 6.2x sales. In 2022, the analyst estimate for revenue is $9.58 billion, or 3.6x sales. In 2023, the estimate is $15.22 billion, or 2.3x sales.   

Without taking its Q1 2022 guidance into account, most investors would consider these price-to-sales multiples to be very attractive. Based on Tesla’s (NASDAQ:TSLA) 2023 estimate of $105.75 billion, it’s trading at 10.6x 2023 sales, a multiple almost 5x higher.

Tesla’s good but not that good. 

Q1 2022 Is Much ado About Nothing

At the midpoint of its Q1 2022 guidance, Nio expects to deliver 25,500 vehicles, 27.1% higher than Q1 2021. Compared to the 422.7% increase a year ago, I can see why some investors might be worried the company’s sales are slowing.

However, it only started delivering vehicles in Norway last September. In 2022, as Li stated, it plans to enter other countries. That will have a positive effect on deliveries in Q2 2022 and beyond. I would be shocked if Nio didn’t deliver more than its midpoint guidance.

In its Q3 2021 report, Nio said its Q4 2021 deliveries would be 24,500 at the midpoint of its guidance. It came in 2.3% higher. If it does it again, deliveries in Q1 2022 will be 26.010, 510 higher than the estimate.

By the end of 2022, the company will have six production vehicles rolling off its assembly lines. This means it won’t have to rely on one or two vehicles to drive sales. That makes it a lot easier to keep the ball moving forward without taking undue chances to grow its business. 

While investors might be worried about the company’s guidance, analysts are pretty upbeat about Nio’s future. Mizuho analyst Vijay Rakesh, according to a report from Barron’s, called its gross margins solid at 17% in the quarter. 

In the company’s Q4 2021 conference call, Li said that it would upgrade the smart hardware for the 2022 releases of the ES8, ES6, and EC6. While it’s resisted price increases to date, this could be the straw that breaks the camel’s back. 

I believe it will have no problems passing cost increases on to its customers.  

The Delisting Is a Red Herring

Many of the dual-listed stocks, including Nio, fell in mid-March on renewed concerns that these stocks would be delisted. This resulted from the Securities and Exchange Commission listing five Chinese companies for failing to adhere to the Holding Foreign Companies Accountable Act (HFCAA).

However, because Nio has gotten a dual-listing on the Hong Kong Stock Exchange, investors won’t be left in the cold should it be delisted in the U.S. The earliest any stock could be delisted is 2024.

There’s still time for Chinese and American authorities to work out some sort of agreement to allow these companies to remain U.S. listed. 

In the meantime, from where I sit, despite a 50% gain from the middle of March, NIO stock still remains relatively inexpensive compared to Tesla, albeit from a sales perspective. There is no comparison between the two when it comes to profitability. 

The median target price for Nio is currently $34.49. That suggests 61% upside over the next 12 months.   

A little abouve $20, NIO stock remains an excellent buy. 

On the date of publication, Will Ashworth 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.