KEY POINTS: IS NIO A BUY ON EARNINGS?
- Despite recent headwinds, Nio’s production increase has remained consistent.
- Throughout 2021, revenue grew 125% from 2020.
- A decline in the share price results in a higher valuation for investors.
Headwinds hitting the auto sector are harder for early stage companies. Chinese EV manufacturer Nio (NYSE:NIO) is one of those. Worldwide semiconductor scarcity, and other raw material difficulties, have hampered manufacturing. Let’s look at whether Nio is a buy yet.
Nio is still expanding despite manufacturing difficulties, with plans to boost manufacturing capacity and territory in 2019. When the firm released its fourth-quarter and full-year 2021 results, it forecasted first-quarter deliveries would be roughly consistent with the previous quarter. However, a look at where it currently sits during this growth stage compared to EV leader Tesla (NASDAQ:TSLA) might offer investors more optimism.
Transitory delivery concerns
While investors were disappointed with Nio’s delivery targets for March, the trend continues to rise. In addition, since the fall of 2020, there has been trailing-12-month (TTM) delivery data.
The company’s recent downturn came first from its efforts to retool its lines ahead of introducing two new sedans this year. Another factor has been broad supply chain issues affecting several international automakers. Demand in China and Europe, on the other hand, is still robust. As a result, Nio deliveries should resume growing faster than in recent months as soon as the maintenance work is complete and the supply chain situation improves.
Despite delays, Nio’s revenue growth has remained solid. Subscription battery swap services contribute to some of the additional income. In addition, that service plans to increase scale, allowing Nio to set itself apart from rivals. As a result, overall revenue for 2021 expanded more than 125 percent over 2020, and it surpassed $5 billion in terms of equivalent dollars.
That is a very rapid increase, comparable to when Tesla was first getting started. Nio plans to add two sedans to its lineup this year, much as Tesla did when it launched SUVs. As Tesla increased the number of cars it offered, its revenue continued to rise, and Nio could see similar growth.
Nio stock has been declining for some time. That was due to the manufacturing difficulties, as mentioned earlier, and geopolitical events, including the Ukraine conflict and regulatory concerns in both China and the US.
Nio’s valuation has decreased to a market cap of just over $30 billion, down by nearly 40% from its peak. A price-to-sales (P/S) ratio of less than 6 takes a portion of the risk off the table for investors. While factors outside Nio’s control might cause it to fail, operationally, it should continue to thrive. Demand is robust, and next week Nio will start shipping its new ET7 luxury sedan outside of China. Vehicle delivery growth should accelerate as Nio grows internationally. Nio could be a great buy, and an excellent opportunity to get some exposure.