Senior Investment Analyst
Chinese new energy car brand NIO was showcased at the China Auto Expo during the Kovid 19 pandemic. Selective focus on the logo.
At the time, the defeated Chinese EV stock was a falling knife. This is a drop of about 75% over the course of nine months. And with investors worried about rising metal prices, Kovid-19 lockdowns in China and Chinese tech stocks delisting, sales are accelerating.
In the podcast, I mocked those issues as short-term headwinds that will soon pass. Meanwhile, I am told that the valuation on NIO stock is really $ 14 and forced on the change. So I boldly announced that I would crash NIO stock.
And since then, NIO stock has risen more than 40% in just five short trading days. Talk about big gains in a shorter time frame. And if you want more stock picks like this one, check out my other products.
But for now, let’s stick with NIO stock.
The luxury EV startup skyrocketed last week. But it is still at an all-time high of more than 60%, and fourth-quarter earnings are set to come after markets close this Thursday.
So … Earnings on NIO stock accelerate this breakout? Or will they send it to the new minimum?
I think it’s the past. And here are three big reasons.
China’s EV market is on fire
The first reason we really like NIO stock is $ 20 ahead of its earnings report – contrary to popular belief – China’s EV market is now completely on fire!
In January 2022, over 370,000 new EVs were registered in China – an increase of 115% from January 2021. This is a 153% growth in new EV registrations in China throughout 2021.
Perhaps most impressive, EVs now account for about 13% of all new car sales in China. Considering just five years ago it was really wild, EVs accounted for just 2% of total car sales in China.
In other words, China’s EV market has exploded in the last five years. And it won’t slow down anytime soon.
To be sure, the new round of Kovid-19 lockdowns threatens EV production capacity in the country. But President Xi said – for the first time – that these lockdowns should not and will not interfere with economic activity. Therefore, the volume of production must be good.
EV metal prices skyrocketed in the wake of the Russian invasion of Ukraine. But this big pop has been moderating in recent weeks. And at current levels, our analysis suggests that the input cost added to the EV manufacturer is very small, so costs should be low.
Backdrop Priming NIO Stock to Rocket
Meanwhile, China has extended the electric vehicle subsidy for two years. But it plans to roll out them progressively by 2025, so we’re in this “golden middle ground” where there are still subsidies but consumers know they’ll be gone soon. And that will create huge demand in China for EVs in 2022-23.
And don’t forget those skyrocketing gas prices. (Can you ever do that?) They’re not just up here in the States. They are also skyrocketing in China and this is another demand driver for EVs.
Basically, the Chinese EV sales background is more favourable over the next 12 months. At the same time, the sound of removal from all this list around Chinese stocks faded. The Chinese government has promised to support the listing of its companies in foreign exchange – a move that will not happen anytime soon, but guarantees the exclusion of high-profile Chinese stocks.
The impact of investment? EV stocks – and in particular, Chinese EV stocks – are set to roar.
NIO is strongly implementing
The second reason we really like NIO stock is that the company is operating flawlessly in the face of a growing Chinese market.
Look at the company’s distribution volume trends over the last two years. It is located up and right on an incredibly smooth trail.
Graph showing the steady rise in NIO EV distributions
NIO has been able to grow with the Chinese EV market since the company began distributing cars in 2019.
We suspect that this strong execution will continue.
We are especially excited about the release of ET7 this year, and we believe the luxury sedan will shine brightly in the Chinese market over the next 12 months. We are expecting huge demand for that model.
And at the same time, we are excited about NIO’s continued expansion into Europe. The company has made clear in the past few months that it intends to become a global EV brand like Tesla (NASDAQ: TSLA). The successful European expansion in 2022 is the validation of this vision. And so, it serves as a great upside catalyst for the stock.
Between these two catalysts – and the macroeconomic picture in China and across the entire EV sector – is significantly improving – we believe that NIO stock will contribute to huge returns over the next 12 months.
In fact, we think most EV stocks are coming to a big 2022.
The valuation on NIO stock is impressive
The last and arguably most important reason why we are so bullish on NIO stock ahead of its earnings report is the price for the awful news. And any good news on Thursday could spark a big and long rally in stock.
We believe NIO will deliver at least 150,000 cars by 2022. Based on its current market cap, NIO stock is valued at $ 225,000 for each planned car sold this year.
It is much cheaper for a high-tech luxury EV startup. In that sphere, there are Big Four “power players’ ‘ – NIO, Tesla, Lucid (NASDAQ: LCID), and Rivian (NASDAQ: RIVEN). All have exceptional technology that allows cars to do 300-plus miles of driving range, 500-plus horsepower and sub-3-second 0-60 times. With high brand equity and strong customer demand, everyone has exceptionally smooth designs and finishes in their cars.
In the world of high-tech luxury EV startups, NIO stock is cheap. Tesla is worth about $ 650,000 for every projected car sold in 2022. Rivian has raised $ 1.5 million for every 2022 delivery, while Lucid 2022 commands more than $ 3.2 million for the planned distribution. Each car sold by NIO is worth just $ 225,000.
Graph comparing the value of high-tech luxury EV startups
In other words, if the company gets a unit valuation similar to Tesla’s, NIO stock is worth about 3x its current price – about $ 60.
And this is a conservative way of looking at things because NIO is growing much faster than Tesla at the present moment.
Therefore, although the NIO may warn about production headwinds in its earnings call on Thursday, we think the valuation in the NIO stock reflects those headwinds perfectly. However, what it does not reflect is the company’s ability to maintain its hyper growth trajectory in 2022.
The final word
We believe that the year 2022 will go down as the year the world goes electric.
Tens of new EV models are being released this year. A handful of them are debuting at a sub- $ 40,000 price point – a price that equates to new gas-powered cars. Meanwhile, gas prices are skyrocketing. And EV subsidies are in the “Golden Middle Ground” globally. They’re still there, but customers know they won’t in a few years.
This is a multiplying ground for enormous EV demand in 2022.
Yet, before this surge in demand for electric cars, EV stocks are trading at enormous discounts – we believe it is the generation buyout opportunity to steal the next industry titans of the auto industry, before it rises by hundreds (if not thousands).
We believe NIO stock is ready to fly high on any good news.
And why we have NIO stock in our core Innovation Investor portfolio. But this is far from the only EV stock we have. In fact, the NIO stock is going to be an enormous long-term winner, but it won’t be big.
Instead, the title is reserved for a small, completely unheard of $ 3 stock that operates on a stealthy “permanent battery” technology that could completely reshape the industry.
Less than $ 3 – and this company could potentially change the world over the next decade.
The upside potential in this small stack is enormous – needless to say I am not big enough to write its name in this post.