Nio (NYSE:NIO) stock is tumbling for a second straight day amid ongoing fears about the U.S. Federal Reserve’s tightening and China stocks being delisted. But these concerns look overdone. Meanwhile, NIO stock has become cheap, and its electric vehicles and battery swapping system could easily take Europe and the U.S. by storm. Therefore, I urge long-term investors to buy NIO stock on the dip.
Minutes of the Fed’s last meeting released yesterday showed that the central bank intends to reduce the size of its balance sheet by up to $95 billion. But there’s a good chance that inflation will slow soon, driven in part by supply chain improvements, many Americans’ return to work and easing spending on goods as outlays on services climb. The Fed will likely respond to slowing inflation by lowering its balance sheet by significantly less than $95 billion per month.
As far as the delisting rule is concerned, Beijing appears to be taking action that will prevent Chinese stocks from being delisted. Specifically, “Chinese regulators … [are looking to] allow non-Chinese government agencies to access audit documents,” Barron’s recently reported. The delisting threat arose because an American law requires foreign stocks to be delisted from American stock exchanges unless the companies that issued the shares meet auditing requirements detailed in the law.
As for NIO stock itself, it is trading at 2.5 times analysts’ average 2023 sales estimate. Moreover, for next year, analysts’ average earnings-per-share estimate for the company is 12 cents. In other words, on average, analysts expect the company to be profitable in 2023.
And Nio’s battery swapping system may allow it to generate much more revenue than analysts expect in Europe and potentially the U.S. in 2023. Nio’s battery swapping system works by allowing the owners of electric vehicles, for a monthly fee, to exchange their used EV batteries for new ones. The entire process takes five minutes. As a result, EV owners don’t have to worry about waiting hours for their batteries to charge. Further, any worries about being stranded due to an uncharged battery are minimized.
Since Nio has already perfected the system in China, multiple European and American automakers may very well decide to license its approach in order to make their own EVs much more attractive to consumers.
On the date of publication, Larry Ramer 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.
