NIO (NYSE:NIO) shares have been volatile this year. Shares in the EV maker plummeted along with other growth stocks at the beginning of the year before recovering amid signs that China was relaxing its Covid-19 restrictions.
The stock is down 57% over the past 12 months. But despite the volatility, I see NIO as a cheap stock to buy and hold for the long run. In fact, I think this Shanghai-based EV maker is the next Tesla. Here’s why.
Excellent value
NIO is one of the best-value EV makers, despite its recent gains. The company doesn’t make a profit yet, and it doesn’t anticipate being profitable until 2024. However, using the price-to-sales metric, I can see that NIO appears cheaper than most of its competitors.
| Stock | Price-to-sales |
| NIO | 5.8 |
| Tesla | 11 |
| Rivian | 70 |
| Lucid | 234 |
| Li Auto | 6.8 |
As I can observe, NIO is the cheapest stock on this list according to the metric. It’s also cheaper than Chinese peer Li Auto, which has made considerable gains in recent weeks. Its share price has nearly doubled.
Growth curve
NIO has been on an impressive revenue growth curve. The company has grown from sales of $719m in 2018, to $5,686m in 2021. This is reflected in car sales that moved from 8,101 units in 2018 to 91,429 in 2021.
This growth resembles that of Tesla. The sector leader delivered approximately 10 times more cars than the Chinese firm in 2022. However, at NIO’s current rate of growth, it wouldn’t be long before the Shanghai business reaches Tesla’s current levels.
Market-leading tech
NIO has a unique battery replacement system that allows car owners to swap batteries at NIO stations. This can be done in just three minutes, which makes it much quicker than conventional charging technology. However, owners can also charge their cars at home.
By using larger batteries than Tesla, NIO can also boast greater range, albeit using different testing standards. According to NIO, the ET7 sedan has a range of 1,000km. That said, it doesn’t quite have the performance of the equivalent Tesla.
Risks
There are always risks to any investment case, and there are certainly a few here.
NIO production slumped in April when the Chinese government introduced lockdowns to tackle a handful of Covid-19 cases. Beijing has since taken a more business-friendly approach to the virus, but there’s clearly a risk that if more cases emerged, we could see tougher restrictions again.
Being a Chinese firm, it may also be the case that NIO will struggle to gain fair access to the lucrative US market.
In the long run, there’s also the possibility that EVs will lose out to hydrogen technology. Although this is yet to be seen.
Summary
Despite these risks, I’d buy more NIO stock at the current price. I’m already up 40% with NIO, but I think it could go further in the long run as it continues its strong growth.
