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Still Waiting for the Right Entry Point? Buy NIO Now
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NIO Inc. (NIO - Free Report) has had an unimpressive run on the bourses in 2021, with shares underperforming the industry (-35% vs +2.6%). The China-based electric vehicle (EV) maker took a beating owing to the global chip crisis, equity offerings by the firm and regulatory concerns in China. Broader selling pressure on U.S.-listed China stocks after Didi Chuxing announced plans to delist from the NYSE in less than six months after its IPO amid regulatory pressures had a negative impact on NIO. Fears of potential delisting of China EV stocks spooked investors last month. In December alone, shares of NIO tanked 17.5%.
While greater scrutiny on U.S.-listed China companies could still be a matter of minor concern but it’s only a transitory issue and shouldn’t hold you back from investing in the rising EV star of China, considering its solid long-term prospects. With NIO currently 52% off its 52-week high, does this represent a buying opportunity? We believe so. Since the stock is likely to rebound in 2022 on the back of several positive catalysts, it makes sense to buy the dip in NIO.
Let’s discuss why we think this year is likely to bring better tidings for NIO.
China’s Red-Hot EV Prospects: Firstly, China is the world’s largest EV market, and the soaring popularity of green vehicles in the country is a major booster for NIO. Per the China Association of Automobile Manufacturers (“CAAM”), sales of new energy vehicles (NEVs) surged 157.5% to 3.52 million units in 2021. The general secretary of the vehicle industry guild, Cui Dongshu, expects NEV sales in China to top 6 million units this year. CAAM envisions NEV sales to surge 47% year over year in 2022 to 5 million units. NIO seems well poised to cement its long-term foothold in the EV market of China. The firm’s strong standing with the government of China lends it an advantage.
Growing Popularity of Existing Models: The rising demand for NIO’s ES6, ES8 and EC6 models is enhancing the firm’s top line. NIO delivered a record-breaking 25,034 vehicles (higher than its expectation of 23,500-25,000 vehicles) in fourth-quarter 2021, reflecting a 44.3% yearly increase. Its yearly deliveries shot up 109.1% to 91,429 vehicles in 2021. The cumulative deliveries of ES8, ES6 and EC6 were 167,070 vehicles as of Dec 31, 2021. Revenues in the last reported quarter were up a whopping 116.6% and NIO expects the top line to grow 41.2-52.2% year over year in fourth-quarter 2021.
Exciting Lineup of Upcoming Models: This year, NIO plans to introduce three new products based on the NIO Technology Platform 2.0. The company would start order confirmation of its fourth vehicle offering, the ET7, on Jan 20. Deliveries of this upscale sedan are set to commence in March. ET7's drag coefficient has improved to 0.208, with an improvement in the EV's range to 550 km with the standard 75-kWh battery pack. With the 150-kWh pack, the EV will offer a range in excess of 1,000 km.
Last month at the NIO Day Event, the company unveiled its fifth product offering, the ET5. This mid-size electric sedan draws a lot of its interior design from ET7. ET5 has a drag coefficient of 0.24, thereby offering a range of more than 550 km with the 75 kWh Standard Range Battery, 700 km with the 100 kWh Long Range Battery and more than 1,000 km with the 150 kWh Ultra-Long-Range Battery. The delivery of ET5 is expected to commence in September 2022.
While NIO has not yet revealed its sixth offering, there is indeed a lot of excitement surrounding its new models. It should be noted that ET5 will be the company’s most affordable car so far, with a starting price of RMB 328,000. The strong product lineup should help NIO attract a larger customer base and further boost deliveries and top-line growth.
International Expansion Plans: NIO has already made inroads into the European market, with Norway serving as a launching platform. The company opened its first showroom in Norway, dubbed as “NIO House” and started deliveries of the ES8 in Norway in September 2021. NIO announced plans to enter five additional European markets (including Germany, Netherlands, Sweden and Denmark) this year to capitalize on ballooning sales of EVs in Europe. Further, it intends to expand to more than 25 countries and regions globally. NIO’s strategic European road trip augurs well and is expected to boost prospects.
The BaaS Advantage: NIO’s battery swap technology — which is part of NIO’s BAAS (Battery-as-a-Service) strategy — is a game changer and provides an edge to the firm over peers. The company claims that a battery pack can be replaced in its vehicles in about three minutes. In the last earnings call, NIO notified that it deployed 608 swap stations and completed more than 4.74 million battery swaps for users. As of 2021-end, the total number of battery-swap stations has increased to more than 700. By 2022-end, NIO targets 1,300 battery swap stations, 6,000 fast chargers and 10,000 destination chargers. Encouragingly, NIO aims to raise the count of battery swap stations to 4,000 by 2025-end.
Strong Cash Position: NIO ended third-quarter 2021 with cash and cash equivalents of $3.3 billion, up from $2.7 billion in second-quarter 2021. The company’s current ratio stands at 2.04, higher than the industry’s 1.24. Additionally, NIO completed an at-the-market stock offering in November 2021, raising gross proceeds of $2 billion. A strong liquidity profile should enable the firm to invest in growth initiatives.
Capacity Ramp Up: We are optimistic about NIO’s plans to expand production capacity to keep pace with the burgeoning EV demand. It intends to double the manufacturing capacity at the Hefei plant to 240,000 vehicles a year by mid-2022. Eventually, production is likely to increase to 300,000 units annually with additional shifts. NIO’s margins are likely to improve with economies of scale.
Strategic Deals: NIO’s collaboration with Mobileye for the development of driverless vehicles in China bodes well. Per the deal, NIO is set to mass-produce self-driving systems designed by Mobileye, which will be incorporated into its line of electric vehicles. In fact, NIO’s ET5 model will be integrated with 17 standard Advanced Driver-Assistance System functions. Recently, NIO partnered with Baosteel, which will aid the EV maker to leverage China’s steel giant’s expertise in products like non-oriented silicon steel and automotive plates.
Last Words
While surging operational costs, stiff competition and regulatory uncertainty may pose temporary hurdles for NIO, the number of tailwinds significantly outnumbers the headwinds. The company is well poised to thrive this year, thanks to its strong product lineup, expansion plans, innovation and technology advancement. NIO surely has a lot of factors working in its favor that make it a good pick for the long haul to cash in on China’s EV boom.
While the P/S ratio might still appear stretched, as is the case with most EV companies, the stock is still a bargain as it is more than 50% off its high attained in 2021. So don’t wait for a better entry point, else you may just miss the boat. NIO currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for NIO’s 2022 earnings and sales implies year-over-year growth of 90% and 83%, respectively.
2 Other Stocks to Ride the EV Revolution
Tesla (TSLA - Free Report) : Valued at more than $1 trillion, Tesla is riding on the rising demand for Models 3 and Y. The EV king hit an incredible milestone in the last reported quarter, with record deliveries and production. Most importantly, gross margin — excluding credits — came in at +28.8%, at or near an all-time record high. Over a multi-year horizon, Tesla anticipates achieving 50% average annual growth in vehicle deliveries.
TSLA currently sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for Tesla’s 2022 earnings and sales implies year-over-year growth of 33% and 43%, respectively.
Ford (F - Free Report) : This legacy automaker is hitting all the right notes toward an electrified future. While Mustang Mach-E has already become a hit among consumers and is boosting the company’s sales, the much-awaited electric version of the hot-selling pickup F-150 is set to further fuel Ford’s prospects. Ford’s efforts to boost its battery technology, proprietary software and hardware stack named Blue Oval Intelligence and joint venture deals with SK innovation offer growth visibility.
F currently sports a Zacks Rank #1. The Zacks Consensus Estimate for Ford’s 2022 earnings and sales implies year-over-year growth of 4% and 13%, respectively.
Image: Bigstock
Still Waiting for the Right Entry Point? Buy NIO Now
NIO Inc. (NIO - Free Report) has had an unimpressive run on the bourses in 2021, with shares underperforming the industry (-35% vs +2.6%). The China-based electric vehicle (EV) maker took a beating owing to the global chip crisis, equity offerings by the firm and regulatory concerns in China. Broader selling pressure on U.S.-listed China stocks after Didi Chuxing announced plans to delist from the NYSE in less than six months after its IPO amid regulatory pressures had a negative impact on NIO. Fears of potential delisting of China EV stocks spooked investors last month. In December alone, shares of NIO tanked 17.5%.
While greater scrutiny on U.S.-listed China companies could still be a matter of minor concern but it’s only a transitory issue and shouldn’t hold you back from investing in the rising EV star of China, considering its solid long-term prospects. With NIO currently 52% off its 52-week high, does this represent a buying opportunity? We believe so. Since the stock is likely to rebound in 2022 on the back of several positive catalysts, it makes sense to buy the dip in NIO.
Let’s discuss why we think this year is likely to bring better tidings for NIO.
China’s Red-Hot EV Prospects: Firstly, China is the world’s largest EV market, and the soaring popularity of green vehicles in the country is a major booster for NIO. Per the China Association of Automobile Manufacturers (“CAAM”), sales of new energy vehicles (NEVs) surged 157.5% to 3.52 million units in 2021. The general secretary of the vehicle industry guild, Cui Dongshu, expects NEV sales in China to top 6 million units this year. CAAM envisions NEV sales to surge 47% year over year in 2022 to 5 million units. NIO seems well poised to cement its long-term foothold in the EV market of China. The firm’s strong standing with the government of China lends it an advantage.
Growing Popularity of Existing Models: The rising demand for NIO’s ES6, ES8 and EC6 models is enhancing the firm’s top line. NIO delivered a record-breaking 25,034 vehicles (higher than its expectation of 23,500-25,000 vehicles) in fourth-quarter 2021, reflecting a 44.3% yearly increase. Its yearly deliveries shot up 109.1% to 91,429 vehicles in 2021. The cumulative deliveries of ES8, ES6 and EC6 were 167,070 vehicles as of Dec 31, 2021. Revenues in the last reported quarter were up a whopping 116.6% and NIO expects the top line to grow 41.2-52.2% year over year in fourth-quarter 2021.
Exciting Lineup of Upcoming Models: This year, NIO plans to introduce three new products based on the NIO Technology Platform 2.0. The company would start order confirmation of its fourth vehicle offering, the ET7, on Jan 20. Deliveries of this upscale sedan are set to commence in March. ET7's drag coefficient has improved to 0.208, with an improvement in the EV's range to 550 km with the standard 75-kWh battery pack. With the 150-kWh pack, the EV will offer a range in excess of 1,000 km.
Last month at the NIO Day Event, the company unveiled its fifth product offering, the ET5. This mid-size electric sedan draws a lot of its interior design from ET7. ET5 has a drag coefficient of 0.24, thereby offering a range of more than 550 km with the 75 kWh Standard Range Battery, 700 km with the 100 kWh Long Range Battery and more than 1,000 km with the 150 kWh Ultra-Long-Range Battery. The delivery of ET5 is expected to commence in September 2022.
While NIO has not yet revealed its sixth offering, there is indeed a lot of excitement surrounding its new models. It should be noted that ET5 will be the company’s most affordable car so far, with a starting price of RMB 328,000. The strong product lineup should help NIO attract a larger customer base and further boost deliveries and top-line growth.
International Expansion Plans: NIO has already made inroads into the European market, with Norway serving as a launching platform. The company opened its first showroom in Norway, dubbed as “NIO House” and started deliveries of the ES8 in Norway in September 2021. NIO announced plans to enter five additional European markets (including Germany, Netherlands, Sweden and Denmark) this year to capitalize on ballooning sales of EVs in Europe. Further, it intends to expand to more than 25 countries and regions globally. NIO’s strategic European road trip augurs well and is expected to boost prospects.
The BaaS Advantage: NIO’s battery swap technology — which is part of NIO’s BAAS (Battery-as-a-Service) strategy — is a game changer and provides an edge to the firm over peers. The company claims that a battery pack can be replaced in its vehicles in about three minutes. In the last earnings call, NIO notified that it deployed 608 swap stations and completed more than 4.74 million battery swaps for users. As of 2021-end, the total number of battery-swap stations has increased to more than 700. By 2022-end, NIO targets 1,300 battery swap stations, 6,000 fast chargers and 10,000 destination chargers. Encouragingly, NIO aims to raise the count of battery swap stations to 4,000 by 2025-end.
Strong Cash Position: NIO ended third-quarter 2021 with cash and cash equivalents of $3.3 billion, up from $2.7 billion in second-quarter 2021. The company’s current ratio stands at 2.04, higher than the industry’s 1.24. Additionally, NIO completed an at-the-market stock offering in November 2021, raising gross proceeds of $2 billion. A strong liquidity profile should enable the firm to invest in growth initiatives.
Capacity Ramp Up: We are optimistic about NIO’s plans to expand production capacity to keep pace with the burgeoning EV demand. It intends to double the manufacturing capacity at the Hefei plant to 240,000 vehicles a year by mid-2022. Eventually, production is likely to increase to 300,000 units annually with additional shifts. NIO’s margins are likely to improve with economies of scale.
Strategic Deals: NIO’s collaboration with Mobileye for the development of driverless vehicles in China bodes well. Per the deal, NIO is set to mass-produce self-driving systems designed by Mobileye, which will be incorporated into its line of electric vehicles. In fact, NIO’s ET5 model will be integrated with 17 standard Advanced Driver-Assistance System functions. Recently, NIO partnered with Baosteel, which will aid the EV maker to leverage China’s steel giant’s expertise in products like non-oriented silicon steel and automotive plates.
Last Words
While surging operational costs, stiff competition and regulatory uncertainty may pose temporary hurdles for NIO, the number of tailwinds significantly outnumbers the headwinds. The company is well poised to thrive this year, thanks to its strong product lineup, expansion plans, innovation and technology advancement. NIO surely has a lot of factors working in its favor that make it a good pick for the long haul to cash in on China’s EV boom.
While the P/S ratio might still appear stretched, as is the case with most EV companies, the stock is still a bargain as it is more than 50% off its high attained in 2021. So don’t wait for a better entry point, else you may just miss the boat. NIO currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for NIO’s 2022 earnings and sales implies year-over-year growth of 90% and 83%, respectively.
2 Other Stocks to Ride the EV Revolution
Tesla (TSLA - Free Report) : Valued at more than $1 trillion, Tesla is riding on the rising demand for Models 3 and Y. The EV king hit an incredible milestone in the last reported quarter, with record deliveries and production. Most importantly, gross margin — excluding credits — came in at +28.8%, at or near an all-time record high. Over a multi-year horizon, Tesla anticipates achieving 50% average annual growth in vehicle deliveries.
TSLA currently sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for Tesla’s 2022 earnings and sales implies year-over-year growth of 33% and 43%, respectively.
Ford (F - Free Report) : This legacy automaker is hitting all the right notes toward an electrified future. While Mustang Mach-E has already become a hit among consumers and is boosting the company’s sales, the much-awaited electric version of the hot-selling pickup F-150 is set to further fuel Ford’s prospects. Ford’s efforts to boost its battery technology, proprietary software and hardware stack named Blue Oval Intelligence and joint venture deals with SK innovation offer growth visibility.
F currently sports a Zacks Rank #1. The Zacks Consensus Estimate for Ford’s 2022 earnings and sales implies year-over-year growth of 4% and 13%, respectively.
You can see the complete list of today’s Zacks #1 Rank stocks here