NIO Remains a Solid Bet on the Future of Electric Vehicles

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Joseph Nograles

Thu, Jan 27, 2022, 8:39 AM 4 min read

NIO recently released its December and full-year 2021 results. These results paint a rosy picture for the future of the company. This is a cause for optimism for long-term NIO stock bulls such as myself. NIO stock had been absolutely hammered in the markets recently. This sell-off may be an opportunity to pick up NIO stock at discounted levels.

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Plenty of Catalysts for NIO Stock This Year

In December NIO delivered 10,489 vehicles to its customers. This represented a 49.7% increase from 2020. Around 4,939 or slightly less than half of these vehicles sold was the company’s ES6 product line. The NIO ES6 is a mid-sized all-electric 5-seater SUV and is the company’s flagship product. The rest of these sales figures comprised of 2,782 ES8s and 2,768 EC6s.

Overall, NIO delivered 25,034 vehicles in Q4 2021 and 91,429 in total for 2021. This was a new record-high delivery and an increase of 44.3% and 109.1% year over year respectively.

I expect sales figures to accelerate further in 2022 as the company launches new products. NIO is set to begin deliveries of the ET7, a “premium” smart electric sedan. The company is also set to launch the ET5 in September 2022. The ET5 is basically the company’s answer to Tesla’s (NASDAQ:TSLA) Model 3. I am particularly excited for this product launch as it will use the second-generation technology of NIO’s unique Battery as a Service (BaaS) feature.

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The BaaS service could provide NIO with an all-important consistent stream of recurring cashflows. The importance of recurring cash flows cannot be understated as it stabilizes the revenue of a business. Analysts also tend to attach a much higher multiple for companies with “as a Service” revenue models.

The launch of the ET5 could be the necessary catalyst to bring this feature to scale. The more cars that use the battery swap feature, the more cost-effective it becomes to build and maintain battery swap stations. NIO has more than 700 stations in China. The company has also completed around 4 million battery swaps. The first European battery swap station was just opened in Norway.

Short-term Could See More Downside

I expect there to be continued downside volatility in the short term for NIO stock. This is despite my long-term optimism for its growth prospects. The correction in the overall NASDAQ has been pretty brutal for growth stocks NIO included.

January sales could potentially disappoint investors. According to Morgan Stanley (NYSE:MS), the surge in sales in late 2021 could be due to the release of pent-up demand. Remember, in 2020 EV sales were hampered by the resurgence of Covid-19 cases in China as well as the computer chip shortage.

In an environment unfavorable for growth stocks, there is the potential for a market overreaction to negative news. This means that NIO stock could see more downside from these levels. The stock is already in a precarious position as it is already trading well below its 200-day moving average.

Investor Takeaway

There is still plenty of reason to be excited for NIO’s future despite the somewhat glum outlook and expected pain in the short term. I can’t say how far NIO stock will drop from these levels due to macro-economic issues.

However, even Morgan Stanley is bullish on the potential of NIO stock. The investment bank has assigned the stock a price target of $66 and an “Overweight” rating. The price target represents a more than 100% upside return from the current price of $27. I continue to like NIO and am considering accumulating shares at this level.

On the date of publication, Joseph Nograles did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joseph Nograles is a part-time freelance copywriter focused on the financial industry. He has worked in a wide variety of industries from tech to consulting with one of the “big four.” He has always enjoyed analyzing businesses and has been a CFA charterholder for nearly a decade now.