NIO Stock: Is This Chinese EV Manufacturer a Long-Term Buy?

Author: Finscreener

Estimated read time: 3 minutes

Publication date: 4th Aug 2021 11:00 GMT+1

In the last few months, Chinese stocks listed on the NYSE have underperformed their peers to a large extent. The Chinese government is cracking down on several companies which has expectedly spooked investors. However, it also provides investors an opportunity to buy the dip and benefit from multifold returns.

One such stock is China’s electric vehicle giant NIO (NYSE: NIO) which is also part of a rapidly expanding addressable market. China is in fact the largest EV market in the world and companies part of this vertical are poised to increase investor wealth at an exponential rate.

NIO stock soared over 1,000% in 2020 but is down 6% year to date and trading 27% below all-time highs. Let’s see if this high-flying EV stock should be part of your portfolio right now.


An overview of NIO

NIO designs, manufactures, and sells smart and connected premium EVs in China. It aims to redefine the user experience and provide customers with comprehensive and innovative charging solutions. NIO has partnered with Jianghuai Automobile Group to manufacture its vehicles. Jianghuai is a state-owned auto manufacturer with an annual production capacity of 120,000 units.

This collaboration meant NIO has not burnt cash while trying to set up a manufacturing plant from scratch. The company’s first model known as the EP9 supercar was introduced back in 2016. NIO’s first volume manufactured vehicle called the ES8 began deliveries in June 2018 and it launched a high-performance premium electric SUV in December 2018.

NIO also offers value-added services such as Power Home which is a home charging solution. Its Power Swap is a battery swapping service while Power Mobile is a mobile charging service.

A company valued at a market cap of $73 billion, NIO has increased sales from $770 million in 2018 to $2.55 billion in 2020. This stellar growth has allowed NIO to improve its bottom line from an operating loss of $1.48 billion in 2018 to $710 million in 2020.


NIO delivered close to 8,000 vehicles in July

NIO recently disclosed it sold 7,931 vehicles in July 2021 which was just short of its 8,083 deliveries in June. In the second quarter of 2021, NIO delivered a record 21,896 deliveries, which was a year-over-year increase of 112%. As of June 30, 2021, cumulative deliveries of its ES8, ES6 and EC6 stood at 117,597.

The company’s deliveries stood at 20,060 in Q1 compared to just 3,838 in the year-ago period. NIO’s vehicle sales rose by 490% year over year to $1.13 billion in the March quarter while total sales were up 482% at $1.21 billion.

In the March quarter, its gross profit stood at $237.3 million, a significant improvement from a loss of $26 million in Q1 of 2020. It suggests NIO ended Q1 with a gross margin of 19.5% compared to a negative margin of 12.2% in the year-ago period.

Its operating loss in the March quarter stood at $45.2 million and was down 81.2% year over year.


What next for NIO stock?

NIO is eyeing expansion in other international markets including Europe which suggests its top-line growth will continue to attract long-term growth investors.

Wall Street expects NIO sales to more than double to $5.4 billion in 2021 and to increase by 64.6% to $8.91 billion in 2022. This will allow the company to reduce its net loss per share from $0.73 in 2020 to $0.08 in 2022.

NIO stock is trading at a forward price to 2022 sales multiple of 9x which is reasonable for a company with enviable growth estimates. Analysts tracking the stock have a 12-month average price target of $56 for NIO which is 30% above its current trading price.

Disclaimer: The writer is an experienced financial consultant who writes for The observations he makes are his own and are not intended as investment or trading advice.