Many electric vehicle stocks hit their all-time highs during the apex of the meme stock rally in 2021. At the time, low interest rates, stimulus checks, social media buzz, and a contagious fear of missing out (FOMO) drove many investors to scoop up the market's hottest EV stocks while glossing over their staggering losses and soaring valuations.
One of those stocks was the Chinese EV maker Nio(NYSE: NIO), which saw its stock soar tenfold from its IPO price of $6.26 in 2018 to a record high of $62.84 on Feb. 9, 2021. But today, Nio's stock trades at less than $5. It ran out of juice as its growth slowed down, it racked up more losses, and rising interest rates popped its bubbly valuations.
Image source: Nio.
But with an enterprise value of 67.6 billion yuan ($9.3 billion), Nio's stock looks dirt cheap at less than 1 time this year's sales. It's still a highly speculative stock, but it also has the potential to turn a small $500 investment into thousands of dollars. Let's review the four reasons the market could revalue Nio as a high-growth stock again.
1. Nio has a battery-swapping advantage
Nio sells a wide range of electric sedans and SUVs. That market is a crowded one, but it sets itself apart from its competitors by using swappable batteries in its vehicles. Its batteries can be quickly swapped out at its own battery-swapping stations -- for either a single use or subscription fee -- as a faster alternative to traditional chargers.
Nio sells most of its vehicles in China, but it's taking small steps into Europe as well. It expanded its battery-swapping network from just 36 stations at the end of 2019 to 2,737 stations at the end of the third quarter of 2024.
It's still operating those stations at a loss, but economies of scale could eventually kick in. It's currently performing an average of 30-40 battery swaps per station per day, and it expects its stations to break even if they can perform 60-70 swaps per day. If it reaches that milestone, it could gain a major advantage against its charger-based competitors.
2. Nio is accelerating vehicle deliveries
Nio's deliveries more than doubled in 2020 and 2021, but they slowed down in 2022 and 2023 as it faced macro headwinds, tougher competition, weather-related disruptions, and supply chain challenges. But in 2024, its deliveries accelerated again as it sold more high-end ET-series sedans and Onvo smart vehicles in China. It also continued to sell more vehicles in Europe.
Metric
2019
2020
2021
2022
2023
9M 2024
Deliveries
20,565
43,728
91,429
122,486
160,038
149,281
Growth (YOY)
81%
113%
109%
34%
31%
36%
Data source: Nio. YOY = Year-over-year.
Nio expects its deliveries to grow 51%-53% for the full year. That acceleration counters the bearish notion that it will be driven out of the market by its domestic and overseas competitors.
For 2025, Nio expects to ramp up its deliveries of its cheaper Firefly in Europe. That new model's margins could be squeezed by the higher tariffs on Chinese EVs which went into effect this October, but it's still competitively priced against similar vehicles. It also plans to roll out its first plug-in hybrid electric vehicles (PHEVs) in 2026.
3. Nio is stabilizing vehicle margins
Nio's vehicle margin dropped from a record high of 20.2% in 2021 to 9.5% in 2023. That steep drop was caused by the grueling price war in China's crowded EV market. Tesla's (NASDAQ: TSLA) steep price cuts exacerbated that pressure.
That figure slid to 9.2% in the first quarter of 2024, but rose to 12.2% in the second quarter and 13.1% in the third quarter. That expansion was driven by its market share gains and higher shipments of premium ET-series sedans.
That expansion challenges the bearish argument that Nio's business will crumble under the soaring costs of manufacturing more vehicles and building more swapping stations. Moreover, Nio is still firmly backed by subsidies from the Chinese government -- as Tesla was backed by U.S. subsidies in its earlier days -- so it can afford to rack up losses for the foreseeable future.
4. Nio has plenty of room to grow
Analysts expect Nio's revenue to grow at a compound annual growth rate (CAGR) of 29% from 2023 to 2026. They also expect it to roughly halve its annual net losses by the final year.
We should take those estimates with a grain of salt, but they're impressive for a stock that trades at less than 1 time this year's sales. Tesla, which turned profitable in 2020, trades at 13 times this year's sales. Therefore, Nio could easily generate multibagger gains if the market values it as a high-growth EV stock again. Nio's stock could remain volatile for the foreseeable future as investors focus on its near-term headwinds, but it could head a lot higher once it overcomes those challenges.
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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.
