Stocks to buy

Take Your Portfolio to the Next Level with NIO Stock

Following an impressive period of growth for electrification-related stocks in the transportation sector, a pause prompted by surging inflation and increasing borrowing costs presents a potentially opportune moment to consider purchasing EV stocks. While electric vehicles remain a prospective future, the sector faced setbacks due to challenging economic conditions. For Chinese EV producers such as Nio (NASDAQ:NIO), these headwinds have been exacerbated by geopolitical tensions and other China-related concerns as well. This will have important implications for NIO stock holders.

That said, this leading Chinese manufacturer is poised for growth. Often viewed as a Tesla (NASDAQ:TSLA) alternative in the Chinese market, the company’s pure-play EVs stand out in terms of their styling and performance. Additionally, the company’s introduction of its NT 2.0 platform with enhanced ADAS is worth watching. This platform should boost demand for Nio’s SUVs, which already benefit from higher relative gross margins. Nio’s strategic move to be among the first EV players to offer the Battery-as-a-Service (BaaS) business model (since August 2020) further ensures sustainable revenue and customer loyalty.

Though Nio is a few years away from consistent profits, the company closed out September with $6.2 billion in cash and received a $2.2 billion equity investment from CYVN Investments in late 2023. This has provided ample resources for production expansion and ongoing innovation.

What’s in Store for NIO

Nio’s ET9 luxury sedan will launch in the first quarter of 2025, priced at approximately $112,000. Despite starting with modest sales, the vehicle aims to strengthen Nio’s brand globally, boost margins, and showcase its 5-nanometer autonomous driving chip for a competitive edge.

Advancements in Nio’s autonomous driving tech could open doors to robotaxi and autonomous shipping markets. Despite a reported 10% workforce reduction plan in November (aimed at non-core business segments), this move could enhance profitability and boost the stock’s recovery prospects.

Deliveries Start in March 2024

Nio unveiled updates to its vehicle lineup on January 17. On the same day, Nio announced upgrades to its existing models, with deliveries starting in early March 2024. In 2023, Nio achieved over 160,000 unit deliveries across eight models, securing the top spot in the premium pure electric market segment priced above 300,000 yuan (41,800 USD). 

The upcoming Nio Banyan system version, set for release later this month, will undergo more than 40 functional upgrades. Additionally, this 2024, Nio upgraded its vehicle hardware, delivering new models in March with short-term purchase benefits. Chairman Li Bin outlined priorities: investing in core technologies, improving sales and service, and launching new products under three brands, including an SUV and a small car in 2025.

Excellent Revenue Growth

In Q3, Nio posted revenue of around $2.61 billion, marking a 46.6% year-over-year increase. Vehicle deliveries reached 55,432, up 75% year-over-year. Despite a net loss increase of approximately 11% year-over-year to $624.6 million, Nio sustained delivery growth into Q4. 

December saw 18,012 vehicle deliveries, a 13.9% year-over-year increase, totaling 50,045 for the quarter and 160,038 for the year, reflecting growth of 25% and 30.7%, respectively.

If You Love High-Risk Upside, NIO Stock Could Be An Intriguing Bet

Nio’s stock price has been volatile, and investors have seen what this means on the way down. However, if we do see interest return to Chinese stocks, and Chinese EV makers in particular, NIO stock should get outsized interest as a way to play this space.

I think the company’s intriguing valuation, at only 1.31-times sales, makes this stock one to consider owning on a fundamentals basis alone. But for those thinking long-term (say, five or 10 years down the road), I do think this stock’s risk/reward profile is tilted to the upside. The only thing that’s required to hold this stock is a stomach for volatility.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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