After 117% Revenue Pop, Nio Stock Is 55% Undervalued

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If it weren’t for the uncertainty as to whether the Chinese government would pressure it to remove its shares from the NYSE, NIO, the Shanghai-based electronic vehicle powerhouse, could be trading at a much higher price.

Indeed, if Wall Street’s average price target is around $62, Nio stock is undervalued by 55% by any given indicator. What is the rationale for such a high price target? Here are three reasons:

  • big market
  • increasingly strong market position
  • Excellent product, expanding footprint

Nio’s third quarter results

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NIO — whose American depository shares (ADS) trade on the NYSE — posted triple-digit third-quarter growth and double-digit revenue guidance for the fourth quarter in its November 11 third-quarter report.

NIO revenue is growing and its vehicle margins are improving. According to Jacques Equity ResearchNIO’s third-quarter revenue rose 116.6% to $1,521.8 million, as its vehicle deliveries increased 100.2% to 24,439 vehicles. Its vehicle margin increased from 14.5% to 18% due to higher delivery volumes, increased average selling prices, and lower material costs.

NIO has forecast a shortfall in revenue for the fourth quarter. Specifically, revenue is projected to grow between 41.2% and 52.2% from $1.45 billion to $1.56 billion, while vehicle distribution grows in a range — whose midpoint is 24,250 — 41.1%.

For 2022, analysts expect NIO’s revenue to grow more than 74%. More specifically, analysts surveyed by Seeking Alpha are forecasting an average of $9.83 billion in 2022 revenue — 74.3% higher than the $5.64 billion in 2021 revenue estimates. Investor Location,

The big downside with this company is its lack of profitability. In the third quarter, NIO lost $442 million. NIO has a cushion — it’s sitting on $7.2 billion in cash and short-term investments, while it has $1.8 billion in long-term debt.

big market

NIO is a leader in the Chinese EV market which is big and growing. According to Mordor Intelligence, the market reached $98 billion in total revenue, which is projected to grow at an average annual rate of 31% by 2026.

The Chinese government is helping to accelerate this development. It wants to reduce exhaust emissions and reduce its dependence on oil imports. The number of permits for internal combustion engine vehicle registration in Beijing is limited to 10,000. China also offers substantial tax exemptions for electric vehicles.

increasingly strong market position

The market share of NIO is increasing. J. P. Morgan. In October I wrote that JP Morgan analyst Nick Lai sees NIO as an emerging winner in the “premium” space of the Chinese EV market. Lai expects EVs to control 20% of the Chinese vehicle market in 2025 – less than 5% [October 2021], driven by “decline in EV prices as consumer preferences change and battery costs decline”.

Excellent product, expanding footprint

Analysts give high marks to NIO products. The company is improving manufacturing, it is introducing new products that are likely to attract customers, and it is entering new geographic markets.

Neo’s vehicles are of relatively high quality – outpacing Tesla’s. According to JD Power, NIO ranks highest among all brands in the battery electric vehicle (BEV) segment, citing 109 problems per 100 vehicles (PP100), followed by Tesla (113 PP100) and ORA (129 PP100). ) is the location. According to JD Power, NIO’s ES6 tops the mid-sized BEV segment.

Nio excels in design and has the potential to improve manufacturing. how so? Eileen Ren, vice president of NEV Solutions at JD, said, “Startups, both domestic and overseas, such as NIO and Tesla, excel more in exterior design, human-machine interaction and technology innovation, while joint venture brands tend to outperform others in manufacturing techniques. Huh.” power china.

NIO recently hosted the NIO Day where it introduced new products. These include the “ET5, a smart, mid-sized sedan with a 1000 km range that costs close to a $41,000 battery swap. The ET5 will offer more autonomous driving capabilities for a subscription fee of $107 per month and will include Panocinema, AR and VR”. will include a panoramic digital cockpit featuring the technology,” according to looking for alpha,

NIO plans to expand to more European countries. “With the Norwegian expansion already underway, NIO now has its sights on Denmark, Sweden and Germany.” In addition, in the third quarter of 2022, NIO will begin production of cars at NeoPark, with a production value of “500 billion yuan per year,” wrote SeekingAlpha.

Risk of US delisting of Chinese companies

Chinese companies are pulling capital from US markets, according to market inspection, Chinese stocks cut $600 billion off US markets in 2021 and the trend is likely to continue.

how so? In May, the US-China Economic and Security Review Commission found 248 Chinese companies listed on US exchanges with a total market capitalization of $2.1 trillion. Marketwatch wrote that it’s value has fallen 50% – $600 billion.

Sadly for investors, the trend is likely to continue with moves by the US and China. This is due to a new US law requiring more disclosures from auditors of Chinese companies, as well as “pressure from Chinese regulators on companies with a lot of data to list in China,” wrote MarketWatch.

It’s not just useless. China forced ride-sharing company Didi to delist from the NYSE and sell shares in Hong Kong. Marketwatch writes that such a move is “the most direct and best possible outcome” that NIO will involve.

Since its third-quarter report, NIO stock has lost a third of its value.

If Wall Street is correct, buying NIO at its current $28 per share represents a chance to more than double your money.

But if the economic conflict between China and the US overshadows Wall Street’s expectations and NIO’s rapidly improving business performance, the stock — whose 3.8% was sold as low as of mid-December — will continue to fall.

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