Nio(NYSE: NIO), a major manufacturer of electric vehicles (EVs) in China, went public just over six years ago at $6.26 per American depositary receipt (ADR). It initially impressed investors with its soaring deliveries, and its stock soared to a record high of $62.84 on Feb. 9, 2021.
But today, Nio's stock trades at about $6.50. The bulls retreated as its deliveries cooled off, its margins declined, and it racked up more losses. Rising rates compressed its valuations and the macro headwinds in China exacerbated that pressure. Could this out-of-favor EV stock bounce back and set new all-time highs over the next three years?
Image source: Nio.
What happened to Nio after its IPO?
Nio sells a wide range of electric sedans and SUVs, but it differentiates itself from its peers with its swappable batteries. These batteries can be quickly swapped at Nio's battery-swapping stations as a faster alternative to traditional EV chargers.
Nio started delivering its first vehicles in 2018. Its deliveries more than doubled in both 2020 and 2021, but they slowed down significantly in 2022 and 2023. That deceleration can be attributed to pandemic-related supply chain constraints, weather-related disruptions, the macro headwinds in China, and intense competition across a cooling EV market.
Metric | 2019 | 2020 | 2021 | 2022 | 2023 | 1H 2024 |
|---|---|---|---|---|---|---|
Deliveries | 20,565 | 43,728 | 91,429 | 122,486 | 160,038 | 87,426 |
Growth (YOY) | 81% | 113% | 109% | 34% | 31% | 60% |
Data source: Nio. YOY = Year over year.
But in the first half of 2024, Nio's deliveries accelerated as it grew its market share, rolled out new high-end vehicles like the ET7 Executive Edition sedan, expanded its cheaper Onvo smart vehicle brand in China, and sold more vehicles in Europe.
Nio's vehicle margin fell from a record high of 20.2% in 2021 to 9.5% in 2023 as price cuts from Tesla(NASDAQ: TSLA) and other competitors curbed its pricing power. However, its vehicle margins expanded year over year again in the first half of 2024 as it scaled up its business, overcame its supply chain issues and sold a higher mix of higher-end vehicles.
From 2019 to 2023, Nio's revenue grew at a compound annual growth rate (CAGR) of 63% from 7.83 billion yuan to 55.62 billion yuan ($7.93 billion). However, its net loss widened from 11.41 billion yuan to 21.15 billion yuan ($3.02 billion).
Nio's vehicle margins are finally stabilizing, but it's still expanding its capital-intensive battery-swapping networks across China and Europe. That elevated spending, along with higher tariffs on Chinese EVs in Europe, will likely keep its business unprofitable for the foreseeable future.
What will happen to Nio over the next three years?
From 2023 to 2026, analysts expect Nio's revenue to grow at a CAGR of 27% to 115 billion yuan ($16.4 billion) as it narrows its annual net loss to 9.38 billion yuan ($1.34 billion). Most of that growth should be driven by the Chinese market, but it should also be complemented by its gradual expansion into Europe. It also plans to launch its cheaper Firefly smart car for its European customers by the end of this year.
If Nio matches those expectations in 2026, it would be comparable to Tesla between 2017 and 2018, when its revenue rose from $11.8 billion to $21.5 billion. Tesla narrowed its net loss from $1.96 billion to $976 million during those two years.
Investors shouldn't expect Nio to replicate Tesla's explosive growth trajectory because the EV market is more mature and saturated than it was six years ago. But just as Tesla was backed by big subsidies from the U.S. government, Nio is still heavily subsidized by the Chinese government, which injected billions of dollars into the company over the past four years. That support should prevent it from going bankrupt anytime soon.
Where will its stock head over the next three years?
With an enterprise value of 93.41 billion yuan ($13.32 billion), Nio's stock looks dirt cheap at 1.4 times this year's sales. By comparison, Tesla trades at 8.4 times this year's sales.
That's because the macro headwinds in China, rising tariffs on Chinese EVs, and trade conflicts between the U.S. and China are still squeezing Nio's valuations. It will also likely take a few more Fed-influenced interest rate cuts to drive investors back toward unprofitable growth stocks like Nio again. But if those headwinds dissipate, Nio's valuations could quickly rise.
If Nio matches analysts' estimates through 2026, grows its revenue by another 20% in 2027, and trades at a reasonable 4 times sales, its stock could rise nearly 500% from its current price. That would be an incredible three-year gain, but it would still fall short of the near-870% gain required to revisit its all-time high from early 2021.
If you chased Nio during the meme stock rally, you'll need to wait for a long time to break even. But if you don't already own Nio, it might just be a great time to buy this speculative EV stock as a contrarian play on the Chinese market.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
