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nio stock analysis

Where Will Nio Be in 5 Years?

industrials Sep 13, 2022

As we told you in December of 2021 and again in July of this year, we believe that Nio is going to be an amazing stock over the long run.

And in order to save you the time of reading these two detailed analyses, the short of it was that:

  • Back in December, Nio posted its highest pre-order sales ever, revenues were rapidly expanding, margins were improving, they had a massive cash balance, and the future of the company looked brighter than ever. On top of that Nio's new car (the ET5) had its highest pre-order sales ever.

  • Then in July, we got an update on Nio's business and it turned out to be even better than what it was in December. This is because Nio published sales in June of 12,961 units (+85% MoM & +60% YoY) and was expected to grow by another 75% over the next 12 months! While at the time, the company's production facilities did shut down due to COVID, numbers quickly rebounded and were expected to come back stronger than ever. On top of that Nio officially launched the ES7 -- which was a mid-sized five-seater SUV.

  • But while the upside was clear, the risks for Nio still remained. And that was: The fear of a delisting plus the unfavorable macro environment we've been in. These two factors have and will continue to act as headwinds over the immediate future.

Well fast forward to today, and while the risks are still high, their outlook is as strong as ever.

That's because they've continued to flourish and are set up perfectly for a reign at the top. Let's get into the details below 👇 

Nio Thesis:

So yes, Nio is a risky investment. But betting on young automakers in the EV space is massively different than what it was only a few years ago.

And that's because the future of electric vehicles should be clear by now -- they're here to stay.

And that's why, while we'll admit this pick will come with volatility, the risk isn't as high as people think and their valuation is clearly misaligned. So let's dive into the updates since when we last covered them and the progress they're making.


Nio Update:

As we mentioned before, the production slowdown due to COVID is still lingering overhead and that's why Q3 guidance was so low. However, Nio has reiterated its full-year guidance and still believes it'll achieve its sales target of 150,000 units.

This 150k figure, if hit, implies that NIO will shift from its Q3 guidance of 31-33k units to 66-68k units of vehicle sales in Q4.

Obviously, a ~100% jump in sales in just a quarter, seems like a lofty goal. However, based on the numbers we're seeing so far we believe that 

  • A) They will hit this target and

  • B) Even if they don't, demand is so strong that this short-term miss will end up meaning nothing in the long run.

But let's double-click into Point A for a second. So why do we think their targets are achievable?

Well, it's because we're seeing their factories improve component supply and output ramp up significantly in "Factory 2". In this factory alone, the monthly capacity of ET5 is set to top 10k units in December. And past this, they've found several alternative suppliers in order to get around any short-term bottlenecks.

While their infrastructure still needs to be built out further, it's extremely encouraging to see this factory's workload help them keep up with the scale. 

But let's assume for a second that we're wrong. Now it's time to double-click into Point B.


Demand For Nio:

As we mentioned before, even if they miss these numbers, demand is so strong that this "short-term miss" will end up meaning nothing in the long run.

So what does strong demand look like? Well not only is the sought-after ET5 demand strong, but the ET7 has also demanded 3-5k units per month!

And this is in the face of several issues. One of them is in-store traffic. While traffic is down, it's rebounding and trending in the right direction as we see foot traffic in their flagship stores rise 8% MoM in July and 4% MoM in August.

And also given their new suppliers and factory output, this strong order intake is expected to be well supported as the brand new SUV ES7 also scales up to 3-5k orders per month. While the numbers haven't been published yet, talks are that ES7 orders are 20-30% higher than the peak level of ET7 orders we saw in January!

Therefore this improving scale paired with higher pricing should allow them to keep revenue high while also improving their gross margins.


Nio Long Term Outlook:

But here at Moby, when we say long term, we're thinking several years down the road. And in order to get to where they need to be then, we're looking towards 2023 to make sure the right stones are being laid down.

And so far we're seeing that they're likely to release another big model cycle next year. This should bring upgrades to the ES8, ES6 & EC6.

And in addition to this Nio has been rumored to roll out a third line of cars that caters toward a broader customer base using tiered pricing. They're going to be able to do this because of the 150kWh solid-state battery expected to be released by the end of the year.

And again, while Nio does come with risk, the upside here is just too good to pass up on.

Nio clearly has the upside of getting to hundreds of billions in market cap, with demand and the infrastructure ready to support it. 


Nio's Valuation:

So if all of this was not debatable, why isn't Nio's stock worth more? Well, remember those risks we spoke of?

While we think they're overblown, one "risk" is the macro environment. And as we've been saying for months now, don't fight the Fed.

If the Fed isn't being accommodative, growth stocks like Nio will have a very hard time doing well. While the Fed will ultimately reverse course at some point, predicting that point is near impossible.

Therefore we're using this time to continue scooping up Nio at cheap prices -- waiting for that rebound that will likely come later this year or next!

Price Target: $30 (57% upside)

Current Price: $19

Target Date: 9-12 Months

Rating: Overweight

Ticker: NIO

Market Cap: $32B

Dividend Yield: N/A