Nio’s Product Diversity Makes It a Long-Term Buy

  • It’s been almost three weeks since Nio (NIO) announced its April 2022 deliveries.
  • With four vehicles in production, Nio is more than keeping up with Tesla (TSLA).
  • Up almost 19% in the past week, NIO stock appears to have bottomed. It’s now a long-term buy.
Chinese new energy car brand NIO displayed in China auto expo during covid19 pandemic. selective focus on logo.
Source: helloabc / Shutterstock.com

When Nio (NYSE:NIO) announced its April 2022 deliveries update on May 1, investors weren’t impressed by the 28% decrease from a year ago and 49% drop from March. NIO stock ultimately fell from $18.13 on May 4 to a low of $12.71 on May 11.  

However, thanks to Bank of America analyst Ming Hsun Lee’s May 16 upgrade of Nio to “Buy” from “Neutral,” combined with a one-dollar increase in its target price to $26, Nio’s stock is getting a few more nibbles from investors. 

Up almost 19% in the past week, it appears as though the analyst is correct to suggest that the electric vehicle (EV) maker’s worst days are likely behind it. I would agree.    

I believe that the company’s product diversity has something to do with that bounce. For this reason, I, too, believe Nio’s share price has bottomed. It’s now a long-term buy.

NIO Nio $16.35

NIO Stock Hasn’t Been This Cheap Since 2019

One of Lee’s arguments for buying Nio at current prices is its valuation. Its enterprise value is currently 1.7x sales. Investors haven’t applied this low a price-to-sales (P/S) ratio since the back half of 2019 and the first part of 2020. 

“NIO’s current operation is way better than it was in 2H19-1Q2020, and we expect its outlook to be brighter in terms of sales growth, margin recovery and overseas development,” MarketWatch reported Lee wrote in a note to clients. “In our view, the current valuation is attractive for investors to revisit the stock.”

Let’s consider the valuation of Tesla (NASDAQ:TSLA), the number one producer of EVs worldwide. It has an enterprise value of $739.5 billion and trailing 12-month sales of $62.2 billion. That’s an enterprise value-to-sales (EV/S) of 11.9x, 7x Nio’s forward EV/S multiple.

Suppose you use Tesla’s 2023 sales estimate of $116.2 billion, the EV/S multiple drops to 6.4. However, if you apply Nio’s 2023 sales estimate of $15.8 billion, its EV/S multiple falls to 1.2, or one-fifth Tesla’s valuation. 

That seems out of whack, given Nio’s already delivering four vehicle models to customers with more on the way.

Nio’s Product Diversity Matches Tesla

What stood out for me in Nio’s Covid-affected April deliveries update is that it delivered 693 ET7s, the company’s fourth vehicle to roll off the Hefei factory floor. That’s a 325% increase over the 163 ET7s delivered in March, its first month available to customers. 

Nio may deliver 1,000 vehicles for each of its four EVs in May. While those aren’t Tesla numbers, they’re pretty darn good for a company struggling to keep the lights on as recently as April 2020.

How many EVs does Tesla have? It also has four: Model S, Model 3, Model X, and Model Y. Tesla launched its first vehicle in 2012, a decade ago. Nio launched its first vehicle (ES8) in December 2017. So, it took a little over four years to have an equal number of products to sell to potential customers.

And now, it plans to start production of its mass-market sub-brand in 2024. So if Tesla doesn’t watch out, Nio will glide on by.      

Yes, NIO Stock is a Long-Term Buy

If you bought NIO stock at or near its May 12 52-week low of $11.57, I would commend you for your wise move. It hasn’t been this low since July 2020. However, it’s delivered a lot of vehicles in the interim.

As the BofA analyst stated, the company’s sales and margins are looking up, yet investors value it like it’s never delivered a vehicle before. I hate to break it to you; it will officially go over 200,000 cumulative deliveries in its history once it announces May numbers in two weeks.

If you’re an aggressive investor, even at $16.50, NIO stock is an excellent long-term 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.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.


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