NIO joins the luxury electric vehicle market in China. The firm creates, co-manufactures, and distributes smart and connected luxury electric cars, pushing advances in next-generation technologies like connectivity, autonomous driving, and artificial intelligence. EP9 supercar, ES8, ES6, and EC6 are some of their models.
The firm distributes cars through its sales network, including NIO Houses, NIO Spaces, and a mobile application.
Vehicle sales generate the vast majority of revenue. Nio (NIO), a Chinese electric car manufacturer, has been hit hard by market instability, which has particularly harmed Chinese companies.
NIO shares have fallen more than 75% from their peak in January 2021, owing to regulatory pressures from Beijing and Washington and a generally unsettled geopolitical environment.
However, there are compelling reasons to consider investing in Nio. Despite recent bearishness, the company is firmly entrenched as one of the world’s leading manufacturers of electric vehicles.
Furthermore, despite these short-term obstacles, NIO stock has remained stable.
Are you interested in Nio stocks? This article reviews everything you need to know about Nio stock and answers the popular question, “Is Nio a good stock to buy”
What Is Nio?
Nio, founded in 2014, had no knowledge of car production when it first appeared on the scene. However, Nio was dubbed the “Tesla of China” because of its luxurious looks, which generated brisk sales.
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In October 2016, NIO stated that it had been granted an “Autonomous Car Testing Permit” by the California DMV and would begin testing on public roads under the “Autonomous Vehicle Tester Program” parameters as part of its autonomous vehicle program.
According to the business, it intends to introduce cars with level three and level four autonomy.
Nio offers home charging, power express valet services, and other power solutions such as public charging, power mobile charging trucks, and battery swapping.
It also provides value-added services such as service packages, battery payment plans, automobile finance, and license plate registration.
What Are The Pros And Cons Of Buying Nio Stock?
Pros
Growth potential
Any investor purchasing Nio stocks now is most likely focusing on the company’s strong growth figures and long-term growth prospects as the foundation of the bull thesis. Nio recorded 10,500 car deliveries in December, a 50% increase over the previous year.
According to Bank of America analyst Ming-Hsun Lee, Nio’s revenue would increase by 94.4 percent in fiscal 2022 and another 49.6 percent in fiscal 2023. Lee also forecasts 153,838 car deliveries in 2022, up from 91,429 in 2021, or a 68 percent year-over-year increase.
It’s simple to understand why any investor would be enthralled with Nio’s progress. The fast growth of Nio is good enough to answer your question on “Is Nio a good stock to buy?”
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Huge Market Audience And Expanding Potential
According to technology market analysts, Electronic Vehicles will account for one-third of China’s yearly automobile sales of over 25 million by 2025.
This percentage amounts to approximately 8.3 million electronic Vehicle sales in 2025, an increase from the expected 1.9 million sales in 2021.
China has a history of shielding indigenous firms from international competition. On the other hand, no plans to expand outside of China in 2022, with operations in Norway and five other European nations.
If Nio can compete in the global Electronic Vehicle market, the sky appears to be the limit. The global Electronic vehicle market is estimated to have a worth of $5 trillion.
New models
According to experts, regular model introductions are expected to be one of the catalysts driving Nio’s sales growth over the next two years. Nio stated at its investor day event in January that it aims to release three new models in 2022 based on its NT2.0 technology platform.
The ET7 is a huge luxury vehicle designed to rival Tesla Inc.’s (TSLA) Model S sedan. According to management, the ET5 midsize luxury car is expected to reach 10,000 monthly deliveries in 2022.
Finally, management stated that a third model will be released in the second half of 2022, followed by at least three more NT2.0 models in 2023.
Cons
Steep evaluation
Despite its 2021 correction, Nio has remained a top-performing stock in recent years. Investors who purchase the drop in Nio stock are still paying a premium of more than 300 percent over the stock’s price two years ago.
Nio is one of many stocks that have risen in value due to investor enthusiasm for Electric vehicle investments. However, given its present valuation, shares are likely already priced with solid expectations for future growth.
No stock is now trading at roughly nine times revenue and 12 times book value, which are significant premiums to the valuations of lucrative heritage auto stocks such as Ford Motor Company and General Motors Company.
The steep evaluation of Nio is usually why investors wonder, “Is Nio a good stock to buy?”
Low profits
Nio reported an $835.3 million net loss in the third quarter of 2021, up from $587.2 million in the second quarter. Even Bank of America, which has a “buy” rating and a $66 price target on Nio shares, which closed at $29.30 on January 9, predicts a $2.08 billion net loss in 2022.
As interest rates rise, it will become more expensive for unprofitable companies like Nio to borrow the capital they require to grow their businesses.
Unprofitable Electric vehicle stocks, like Nio, will need to demonstrate to investors that they have sustainable, lucrative long-term business models at some time.
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Regulatory problems
In 2021, Chinese equities were under pressure from regulators in China and the United States. In China, government officials have cracked down on the internet, fintech, gambling, and education enterprises to limit their influence and expansion.
So far, Chinese car stocks have escaped the wrath of Chinese authorities, but foreign investors are naturally concerned about the Chinese government’s next move.
Furthermore, the US Securities and Exchange Commission recently passed a new regulation that would delist any Chinese companies that did not meet strict new audit criteria, generating even more significant regulatory uncertainty for Nio investors.
What is Nio’s Long term outlook?
NIO’s revenue growth rate of 49.1% was a significant slowdown from the previous year’s record-breaking figures. Furthermore, its strength increases in General and administrative expenses and R&D spending have obscured revenue improvements.
NIO stated that Research and Development spending surged by 120.5 percent yearly, while Administrative expenses jumped by 95.4 percent yearly.
NIO, on the other hand, is still very much in growth mode.
As a result, investors should not be shocked that the firm continues to invest heavily in growing its R&D expertise and reach. Notably, the company’s European trial has been an enormous success.
The ES8 model has appealed to the global market, particularly among Norwegian consumers. This year, monthly deliveries have been in the top two among 6- and 7-seater passenger automobiles.
As a result, we feel confident in the ability of Nio to expand its reach. NIO will launch its goods and complete services in Germany, the Netherlands, Sweden, and Denmark in 2022. (FQ4’21 earnings call from NIO).
As a result, investors must be patient and give the firm more time as it expands its presence in the sizeable European EV market. As a result, NIO emphasized that it will “increase” its investment in research and development in 2022.
It sees an enormous opportunity to invest in crucial technology and better tailor its offerings to its markets. Notably, the business anticipates that these investments will significantly increase its leverage.
As a result, NIO has set the fourth quarter of 2023 as the breakeven point, with profitability expected in the 2024 fiscal year.
Consensus estimates agree with NIO’s forecast. Furthermore, the Street anticipates that NIO will become profitable on an adjusted Earnings Before Interest basis in the fiscal year of 2023, a year ahead of the company’s projection.
The firm is still forecast to generate considerable top-line growth in FY22, with revenues increasing by 73.3 percent.
As a result, reaching those aggressive expectations will be critical to the company’s ability to maximize its operational efficiencies.
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Is Nio An Excellent Stock To Buy?
Investing in Nio today suits those ready to accept tremendous volatility and considerable risk. However, the famous adage “the bigger the risk, the greater the profit” applies here.
Fundamentally, Nio’s financial situation is improving after debt and liquidity concerns weigh on the stock. It has drastically reduced losses while increasing top-line revenue and improving EV margins.
New electric vehicles, entrance into Europe, and battery improvements promise excellent room for expansion. However, the Electric Vehicles battles are heating up.
The chip supply constraint will be a headwind for Nio in the short future. Longer-term battery supply may pose an even more significant challenge to Electric vehicle stocks. Nio stock has recovered from its March lows, but it still has a long way to go. At the moment, NIO stocks are not a buy right now.
Frequently Asked Questions
Nio shows a very positive long-term growth potential.
Nio is a risky investment owing to external circumstances.
NIO can get delisted in the New stock exchange in the future.
No, Nio stocks do not pay dividends.
Nio is different from other electric vehicles because you don’t need to swap batteries.
Conclusions
With the increasingly inventive expansion of the electric car business, it is only natural that many investors are drawn to the area. NOI electric cars are a leading field player and a popular investor magnet.
Most investors wonder, “Is Nio a good buy?” Nobody wants to put their hard-earned money into a money pit. Thus, this post reviews the critical highlights of the Nio Stock, answering the question, “Is NIO a good buy?”
References
- nio.com – Company Profile
- cnbc.com – Three-stock lunch: Wynn Resorts, JD.com, and Nio
- gurufocus.com – NIO Inc
- money.usnews.com – Should You Buy Nio Stock?
- thestreet.com – Nio Stock: A Gift To Investors Or A Money Pit?
- investors.com – Nio Stock Rallies To Key Level After Ark Invest’s Cathie Wood Buys The Dip
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