NIO Stock: Is This Chinese EV Manufacturer a Long-Term Buy?
August 04 2021 - 6:00AM
Finscreener.org
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.
NIO (NYSE:NIO)
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