Nio (NYSE:NIO) is China’s leading premium EV maker. The company is often dubbed the “Tesla of China.” It more than lives up to this designation, as it’s been outperforming Tesla stock of late. Even so, we believe Nio stock is undervalued, and that shares of the Chines electric vehicle company could reach $100 and then some.
Let’s go back to that Tesla-Nio comparison: Tesla’s worth $580 billion, which compares to Nio’s is $74 billion market capitalization.
While some of that delta can be attributed to Tesla’s solar and energy storage businesses, Nio has neither. That’s okay — because the lion’s share of valuation is reserved for EV domination, and not the ancillary businesses. We see Nio as having the right stuff to dominate the world’s largest market for electric vehicles.
So the right question to ask is: just how high can NIO stock go?
Slow and Steady for Nio Stock
Let’s just get this out of the way: We think Nio’s stock can hit $100.
But there’s a catch … it will take some time for Nio stock holders to see that vaunted $100 per-share figure.
First, let’s try and understand why Nio will be a very dominant global EV maker.
The company has a leading technology platform that is allowing for the creation of super high-performance EVs that are rivaled by only a few competitors in market.
Nio is also leaning into its battery swapping model to reduce the cost of those EVs. It’s therefore one of the best EV makers in the world at optimizing the cost-performance trade-off for consumers. In China, the company has basically already won the battle, because the government has made it clear they are going to support Nio’s growth.
In Europe, the company will soon sell its vehicles in Norway and should soon turn into a big player.
In North America, the road will be longer and tougher, but the company has sufficient technological advantages and strong enough brand equity to at least marginally penetrate the North America EV market.
To get to a Nio stock price forecast of $100, we make a few critical assumptions.
First, we assume global EV penetration of the total auto market of 35% by 2030.
We actually think that’s conservative. Ford (NYSE:F), General Motors (NYSE:GM), and Volkswagen (OTC:VWAGY) are already targeting 40% to 50% EV penetration in their automobile lines by 2030. So, 35% feels appropriately conservative.
Second, we assume Nio can secure an 8% market share in China. That’s roughly the same percentage of China’s population that are high-income earners. We’re assuming here that Nio dominates the premium EV market in China and is also able to win some share in lower-end markets. This, too, seems appropriate to us given Nio’s “home court advantage.”
Third, we assume Nio can grab hold of about 4% market share outside of China. That’s half the China penetration rate. We think that’s fair, because it accounts for increased competition on a global scale.
Fourth, we assume 25% gross margins for Nio in the long, and a 10% operating expense rate, for 15% operating margins. This is similar to what Tesla is operating at today. We see no reason why Nio can’s tap into the same economies of scale to achieve a similar profitability profile.
The Bottom Line on Nio Stock
On those major assumptions, our modeling suggests Nio will do about $5.50 in earnings per share by 2030.
Based on a 25X forward earnings multiple, that implies a 2029 price target for Nio stock of nearly $140. Using a 9% discount rate, that implies a 2021 price target of nearly $70.
So, while we think Nio stock is undervalued today and can and will power to $100 over time, we do not think shares will double overnight.
That’s why Nio is currently the top EV stock to buy within my Next-Gen Mobility portfolio in Innovation Investor — my flagship subscription newsletter service compiling the world’s top emerging megatrends and best stocks within each.
But it’s far from the only EV stock to buy, and my “Top Stock” designation can change with each month, so that you can make the best decision based on the newest information available at any given time. These companies represent the cream-of-the-crop when it comes to disruptive technological innovation in EVs. With each featuring second-to-none management teams and massive long-term potential.
To learn which company which company will earn the title of my Top Next-Gen Mobility stock next, subscribe to Innovation Investor today. You’ll also learn about my other EV standouts, including a secret startup that’s spearheading the self-driving revolution, a company I consider my EV “sleeper” stock of the decade, and a company pioneering a bleeding-edge solid-state battery solution for the cars of tomorrow.
To see my entire lineup of innovative next-generation EV stocks, become a subscriber of Innovation Investor today.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
By uncovering early investments in hypergrowth industries, Luke Lango puts you on the ground-floor of world-changing megatrends. It’s the theme of his premiere technology-focused service, Innovation Investor. To see Luke’s entire lineup of innovative cutting-edge stocks, become a subscriber of Innovation Investor today.