Nio Stock Could Be a Bargain As Its EV Production Ramps Up

Mark Hake

Nio (NIO), the Chinese EV (electric vehicle) sedan maker could be a huge bargain here. The stock is down a lot, as other EV makers have fallen. But now that the company is reawakening from the severe Covid-19 restrictions in the Shanghai area, it could ramp up quickly. It looks like sales might even double over the next two years. That will undoubtedly push NIO stock much higher.

On May 2 Nio said it had delivered 5,074 EVs in April 2022. Moreover, its year-to-date (YTD) deliveries reached an all-time record up, 13.5% year-over-year (YoY) to 30,842.

This is quite a feat especially since NIO had to completely shut down its plants. The harsh Chinese Covid-19 restrictions started in late March through April. Nio had to suspend production on April 9 after a surge of Covid-19 cases disrupted operations at its suppliers.

Reuters reported that strict lockdown measures were put in place in Jilin province and Shanghai. This is where Nio’s major auto part makers' plants and other automakers are located. For example, Tesla (TSLA) has closed its plant in Shanghai ever since March 28 and only recently started slowly opening up production.

Barron’s magazine reported that during the last week of April Chinese authorities started allowing auto production. However, workers had to live in factory-based dormitories in “closed-loop” facilities. Elon Musk told investors last week that Tesla is back to half of its 2,000 EV production run rate per week.

Where This Leaves Nio Stock

Assuming NIO will get back on track by mid-summer, its valuation will rise. The company will make up for its recent production delays. That could be a catalyst for NIO stock. If Nio makes a surprise revenue rebound by the end of Q3, NIO stock could regain much of the ground it has lost.

For example, analysts forecast revenue hitting $9.54 billion this year, up 72.9% from $5.51 billion in 2021. Moreover, the financial forecasts for 2023 show that 20 analysts predict another 66% gain in revenue next year to $15.82 billion. This implies that over the next two years, sales will almost triple.

As a result, Nio’s valuation at $24.9 billion today could be very cheap. As its 2023 revenue figures become attainable, the stock will move significantly higher. Its price-to-sales (P/S) ratio is just 2.6x this year's forecast of $9.54 billion in sales. By contrast, TSLA stock trades at a forward P/S metric of over 8.1x.

This implies that NIO stock could more than double from here. That will happen once investors become more positive about its prospects. That makes NIO stock a good bargain now.

The stock has fallen almost 59% year-to-date (YTD), a miserable performance, as seen in the chart below:

Assuming NIO doubles its revenue over the next years, the stock is likely to at least double from here to around $30 or so. That would still put it below where it ended in 2021. However, its price-to-sales multiple, at 4 to 5 times will be more realistic at least compared to Tesla.

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This is not financial advice and you should not rely on my analysis to buy or sell any stock. I am not undertaking to induce you to buy or sell any securities.

I am relying on the “publisher’s exclusion” in the Investment Advisers Act of 1940 to provide this information without any personalized or individualized investment advice.

Mark Hake writes articles on InvestorPlace.com, Barchart.com, Medium.com, and Newsbreak.com as well as a Beehiiv free newsletter on stocks and cryptos.

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Mark Hake is a financial analyst, investor, and Chartered Financial Analyst (CFA). He writes about US and foreign stocks as well as cryptos, hedge funds, and private equity. He previously ran his own hedge fund, investment research firm, and acted as CFO for a fintech startup. He focuses on finding value, arbitrage, and hidden asset opportunities.

Phoenix, AZ
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