Still waiting for the right entry point? Buy NIO now – January 18, 2022

NIO inc. (NIO Free Report) had an unimpressive run on the stock markets in 2021, with stocks underperforming the industry (-35% vs. +2.6%). The China-based electric vehicle (EV) maker took a hit due to the global chip crisis, the company’s stock offerings and regulatory concerns in China. Wider selling pressure on Chinese stocks listed in the United States after Didi Chuxing announced plans to delist the New York Stock Exchange less than six months after its IPO amid regulatory pressures has had a negative impact on NIO. Fears of a possible delisting of Chinese electric vehicle stocks spooked investors last month. In December alone, NIO shares fell 17.5%.

While closer scrutiny of Chinese companies listed in the US may still be a minor area of ​​concern, this is only a transitory issue and should not prevent you from investing in the rising star of electric vehicles in China, given its strong long-term prospects. With NIO currently 52% off its 52 week high, does this present a buying opportunity? We believe it. Given that the stock is likely to rebound in 2022 thanks to several positive catalysts, it makes sense to buy the decline in NIO.

Let’s see why we think this year is likely to bring better news for NIO.

Prospects for red-hot electric vehicles in China: First, China is the largest market for electric vehicles in the world, and the growing popularity of green vehicles in the country is a major boost for NIO. According to the China Association of Automobile Manufacturers (“CAAM”), sales of new energy vehicles (NEVs) jumped 157.5% to 3.52 million units in 2021. The general secretary of the guild of auto industry Cui Dongshu expects NEV sales in China to exceed 6 million units this year. CAAM forecasts NEV sales to grow 47% year-over-year in 2022 to 5 million units. NIO seems well placed to cement its long-term foothold in the Chinese EV market. The firm’s strong position with the Chinese government gives it an edge.

Growing popularity of existing models: Growing demand for NIO’s ES6, ES8 and EC6 models enhances the company’s product line. NIO delivered a record 25,034 vehicles (more than its expectation of 23,500 to 25,000 vehicles) in the fourth quarter of 2021, reflecting a year-on-year increase of 44.3%. Its annual deliveries increased by 109.1% to 91,429 vehicles in 2021. Cumulative deliveries of ES8, ES6 and EC6 were 167,070 vehicles as of December 31, 2021. Revenues for the last quarter increased by 116.6% and NIO expects the frontline to grow 41.2-52.2% year-over-year in the fourth quarter of 2021.

Exciting range of models to come: This year, NIO plans to introduce three new products based on the NIO 2.0 technology platform. The company would begin order confirmation for its fourth vehicle offering, the ET7, on January 20. Deliveries of this premium sedan are expected to begin in March. The drag coefficient of the ET7 has increased to 0.208, with an improvement in the range of the electric vehicle to 550 km with the standard 75 kWh battery. With the 150 kWh pack, the EV will offer a range of over 1,000 km.

Last month at the NIO Day Event, the company unveiled its fifth product offering, the ET5. This mid-size electric sedan takes much of its interior design from the ET7. The ET5 has a drag coefficient of 0.24, thus offering a range of over 550 km with the standard range 75 kWh battery, 700 km with the long range 100 kWh battery and over 1,000 km with the 150 kWh ultra-long-range battery. Delivery of ET5 is expected to begin in September 2022.

While NIO has yet to unveil its sixth offering, there is indeed a lot of excitement surrounding its new models. It’s worth noting that the ET5 will be the company’s most affordable car to date, with a starting price of RMB 328,000. The strong product line should help NIO attract a wider customer base and further drive shipments and revenue growth.

International expansion plans: NIO has already made inroads into the European market, with Norway serving as a launch pad. The company opened its first showroom in Norway, dubbed “NIO House” and began 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 the explosion in sales of electric vehicles in Europe. Also, it intends to expand to more than 25 countries and regions around the world. NIO’s strategic European road trip bodes well and should boost the outlook.

The BaaS advantage: NIO’s Battery Swap Technology – part of NIO’s BAAS (Battery-as-a-Service) strategy – is a game-changer and gives the company an advantage over its peers. The company claims that a battery can be replaced in its vehicles in about three minutes. In the latest earnings call, NIO announced that it deployed 608 swap stations and performed more than 4.74 million battery swaps for users. By the end of 2021, the total number of battery swap stations has grown to over 700. By the end of 2022, NIO is targeting 1,300 battery swap stations, 6,000 fast chargers, and 10,000 chargers destination. Encouragingly, NIO aims to increase the number of battery swap stations to 4,000 by the end of 2025.

Solid cash position: NIO ended the third quarter of 2021 with cash and cash equivalents of $3.3 billion, compared to $2.7 billion in the second quarter of 2021. The company’s current ratio stands at 2.04, higher than the 1.24 of the sector. Additionally, NIO completed an equity offering in the market in November 2021, raising gross proceeds of $2 billion. A solid liquidity profile should allow the company to invest in growth initiatives.

Capacity increase: We are optimistic about NIO’s plans to increase production capacity to keep pace with the growing demand for electric vehicles. It aims to double the manufacturing capacity of the Hefei plant to 240,000 vehicles per year by mid-2022. Eventually, production is likely to increase to 300,000 units per year with additional shifts. NIO’s margins are expected to improve due to economies of scale.

Strategic transactions: NIO’s collaboration with Mobileye for the development of driverless vehicles in China bodes well. Under the agreement, NIO is set to mass-produce self-driving systems designed by Mobileye, which will be integrated into its range 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 help the electric vehicle maker leverage the Chinese steel giant’s expertise in products such as non-oriented silicon steel and automotive plates.

Last words

While soaring operational costs, fierce competition, and regulatory uncertainty may present temporary hurdles for NIO, the number of tailwinds far outweighs headwinds. The company is well positioned to thrive this year, thanks to its strong product lineup, expansion plans, innovation and technological advancements. NIO surely has a lot of factors working in its favor that make it a good long-term choice to take advantage of China’s EV boom.

While the P/S ratio might still look stretched, as it does with most EV companies, the stock is still a bargain as it’s more than 50% off its 2021 peak. So don’t don’t wait for a better entry point, otherwise you risk missing the boat. NIO currently wears a Zacks Rank #2 (Buy). Zacks’ consensus estimate for NIO’s earnings and sales in 2022 implies year-over-year growth of 90% and 83%, respectively.

2 other actions to ride the electric vehicle revolution

You’re here (TSLA Free Report): Valued at over $1 trillion, Tesla is taking advantage of growing demand for the Model 3 and Y. The king of electric vehicles hit an incredible milestone in the last quarter, with record deliveries and production . More importantly, the gross margin – excluding credits – stood at +28.8%, at or near a record level. Over a multi-year horizon, Tesla expects to achieve an average annual growth of 50% in vehicle deliveries.

TSLA currently sports a No. 1 Zacks rank (Strong Buy). Zacks’ consensus estimate for Tesla’s earnings and sales in 2022 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 the Mustang Mach-E has already become a hit with consumers and is boosting sales for the company, the long-awaited electric version of the hit F-150 pickup should further fuel Ford’s prospects. Ford’s efforts to strengthen its battery technology, its proprietary software and hardware stack called Blue Oval Intelligence, and its joint venture agreements with SK innovation provide visibility into growth.

F currently sports a Zacks No. 1 rank. Zacks’ consensus estimate for Ford’s earnings and sales in 2022 implies year-over-year growth of 4% and 13%, respectively.

You can see the full list of today’s Zacks #1 Rank stocks here

Comments are closed.