Nio (NYSE:NIO) has been on a rollercoaster ride in 2023, with massive price fluctuations seen in recent months. Naturally, investors may wonder whether Nio could generate exceptional returns like Tesla (NASDAQ:TSLA) or BYD (OTCMKTS:BYDDF) over the long-run. In my opinion, Nio certainly has considerable upside potential over the next 5-10 years. However, it also faces risks that may limit gains in the near term.
Gauging Nio’s potential will require a bit more discussion, and that’s what I will be doing today. Let’s dive in!
NIO Stock: The Pros and the Cons
Nio’s strong growth in deliveries is encouraging, with volumes continuing to climb over the long-run, despite the company’s 24% sequential decline in the latest quarter. Its unique battery-swapping stations also give Nio a competitive edge in China and Europe. Plus, Nio’s undervaluation relative to pre-revenue EV startups indicates that multi-bagger returns are possible.
However, Nio’s massive cash burn raises some concerns. The company’s net income was negative $844 million last quarter. Thus, Nio will need continuous access to financing to fund its ambitious growth plans. While recent Middle East investments provided a capital boost, consistent access to funding remains imperative for Nio.
The above two paragraphs are basically a summary of the bullish and the bearish picture. I personally believe Nio can deliver exceptional returns if the EV company maintains sustainable financing and strong growth fundamentals. Nio’s battery-swapping technology gives it a niche advantage in key global markets. With its solid R&D and production ramping up, Nio could be profitable by 2028.
Is Dilution a Threat to NIO Stock?
Some say that investors right now will face massive price pressure when it comes to NIO stock due to its inherent dilution risk, but I disagree. Nio has proved it can prudently raise funds, and the stock has seen limited dilution. Thus, its long-term potential can be substantial if trends continue. So, I do not view dilution as a threat, at least not yet.
In my view, if Nio can continue executing its strategic roadmap over the next five years, a stock price between $45-65 per share is achievable. This outcome would generate massive returns from Nio’s current share price at $8 per share. However, realizing this upside requires the company to fund its operations without game-changing dilution, and successfully execute on its ambitious growth plans.
Therefore, NIO stock certainly carries risks, but it also offers alluring millionaire-maker potential. Nio’s unique market positioning and attractive valuation provide a viable path to generating blockbuster returns for early investors. With access to prudent financing, Nio could make fortunes for shareholders in the coming years.
Of course, things rarely go exactly as planned, especially in the dynamic EV space. But from my perspective, Nio is poised to disrupt the industry with its niche battery-swapping model. If Nio can maintain its technology leadership here, the company’s long-term outlook is quite compelling.
The Bottom Line
In summary, I believe patient, long-term investors could generate massive returns by accumulating Nio stock at current levels. But admittedly, risks abound in owning a pre-profit, cash-burning growth stock like Nio. Its ambitious goals require flawless execution and ample access to capital. Any stumbles along the way could derail the investment thesis. Whether or not you wish to make that leap of faith is up to you.
On the date of publication, Omor Ibne Ehsan 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.
