NIO, Inc. (NYSE:NIO) stock has been hit hard over the last few years. After achieving an all-time high of $62.84 in early 2021, the electric vehicle (EV) maker’s stock has gone in reverse ever since.
Currently trading under $8 per share, the company’s shares are down around 55% over the past 12 months, and 18.28% year-to-date. The highly discounted price is enticing bargain hunters to take a closer look at NIO.
There are some compelling reasons to check out the China-based EV company. NIO reported a 26.7% increase in vehicle deliveries in the fourth quarter of 2022, up 60% from the same time last year. The company is firmly established in China and has begun to expand into Europe.
But there are also some legitimate concerns. NIO CEO William Li set investors on edge when he recently stated that the company has no intention of dropping vehicle prices to compete with Tesla. The company has also had to deal with stricter regulations and heightened restrictions due to its location in China.
So where will NIO stock be 5 years from now?
What Makes Nio Special?
NIO was established in Shanghai in 2014, and it quickly became a major player in the Chinese EV market. In addition to electric vehicles, the company also produces charging piles and provides vehicle internet connections and vehicle warranties.
One of the main selling points for the company is NIO’s patented Power Swap. With most EVs, a single battery is charged and recharged over and over again. NIO batteries can operate that way, but they can also be swapped out at a Power Swap station.
That means a NIO owner can pull into one of 1,300 charging stations across China and have their battery fully replaced. This only takes three minutes or so, faster than many charging stations can operate.
It can also reduce long-term battery issues that come with constant recharging. CEO Li recently announced that NIO planned to build 1,000 more Power Swap stations by the end of the year, bringing the total to 2,300.
Critics of the battery-swapping model state that it won’t reduce overall energy demand unless all EV makers adopt it and use a standardized battery. Tesla has called the technology problematic and questioned the ability to scale battery-swapping worldwide.
Nio Q4 Ups and Downs
The increased deliveries in the final quarter of 2022 led to over $2.32 billion in revenue, a 60.2% year-over-year (YOY) increase from 2021. It was also a 23.5% jump over the third quarter’s results. But vehicle margin was down to 6.8% compared to 20.9% in 2021.
NIO attributed the decrease in vehicle margin to inventory issues and depreciation of its production facilities. Gross profit and margin were all down accordingly. The company reported a net loss of $839 million in the fourth quarter, with a full-year net loss of over $2 billion. That’s over a 250% increase in net loss from the year before.
Despite the lack of profitability, the Price-to-Sales (P/S) ratio is promising. A ratio of 1.76 indicates that NIO could be undervalued in relation to its competitors. Tesla and Rivian currently have P/S values over 6 and 7 respectively. Lucid Group has a P/S ratio of over 21.
Expansion into Europe
NIO has been able to carve out a niche in China, but it hasn’t stopped there. The company entered the European market in Norway, then quickly expanded into Germany, the Netherlands, Sweden, and Denmark.
Expansion means that Power Swap stations have to be built in order for NIO customers to fully experience the brand’s capability. So far, 20 stations have been built in Europe. But NIO expects to build 1,000 more power stations in Europe by the end of 2025.
NIO also announced a new brand, Firefly, that will launch in 2024. The brand’s initial offering will be a compact hatchback priced at around $33,000. The smaller car is designed specifically for the European market, but it will still have the battery-swapping feature NIO is known for.
Despite the company’s success in China and recent expansion into Europe, the EV market is highly competitive. Tesla has the number one selling electric car, the Model Y, and the company’s name recognition and brand loyalty are hard to beat.
But that hasn’t stopped established automakers from throwing their hats in the EV ring. From Ford to BMW, nearly every major automobile company has released an electric vehicle in one form or another.
There is also a crop of smaller brands in competition with NIO. Lucid, Rivian, Polestar, XPeng, Oshkosh, and Li Auto are all vying for market share with varying results. But NIO has a larger product line and more sales than many of its competitors. And many EV companies, like NIO, are still unprofitable.
The major hurdle NIO faces is the country where it’s located. China has stricter regulations than most countries, as evidenced by their recent lockdowns. And the tenuous trade relationships the country has had makes it more difficult for NIO to do business.
Where Will Nio Stock Be In 5 Years?
Based on a 5 year discounted cash flow forecast analysis growth exit, Nio could rise as high as $14.19 per share over the next five years. The consensus among 25 analysts is that Nio share price can reach was high as $14.41 per share.
NIO is a major manufacturer of electric vehicles that has had massive success in China. The company offers an array of models and a unique battery-swapping system. Success at home has been followed up with expansion into Europe.
In the first quarter of 2023, the company expects deliveries to continue to increase, coming in between 31,000 and 33,000 vehicles. This would be a roughly 25% increase over the fourth quarter of 2022. This would drive revenue above $1.5 billion, representing around a 15% increase YOY.
While deliveries are positive, there are plenty of reasons to be bearish on NIO. The lack of profitability, location in China, and tough competition mean there are solid headwinds for the company.
Even though the low stock price and P/S value may be enough to attract high-risk speculators, long-term investors should be cautious. Over the next five years, it’s hard to see the EV maker getting into gear.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.