I’d really like some NIO (NYSE:NIO) shares in my Christmas stocking. Ok, I’ll be honest, there are other things on my Christmas list, not just this stock. The shares have demonstrated extreme volatility this year. But I believe 2023 will be a better year for this Shanghai-based EV manufacturer. Let’s explore why.
Covid pressures
The Chinese EV maker saw its share price collapse along with other tech stocks in late 2021 and early 2022. These growth stocks had become very expensive during the pandemic, and unsurprisingly the bubble burst.
But that was just the start of the year’s troubles. Chinese Covid restrictions were put to the test frequently in 2022. Lockdowns as well as restrictions on movement and working hours have greatly impacted NIO and its peers.
As a result, production growth slowed. In fact, NIO lost $281.2m in the first quarter, much wider than the $68.8m it lost the year before.
However, there are clear signs that China is relaxing its Covid restrictions. In the near term, Covid appears to spreading quickly around the country, and experts are predicting three waves before March.
But hopefully, the situation will improve from then on, and business will return to normal.
Valuation
Chinese EV makers trade at discounts versus their American counterparts. It’s not entirely surprising as the US operating environment engenders a greater sense of stability.
However, the difference in these valuations is quite outstanding.
NIO trades with a price-to-sales (P/S) ratios of 2.8, and that’s way below it’s American peers.
| Stock | P/S ratio |
| Tesla | 6.2 |
| Rivian | 17 |
| Lucid | 32 |
Naturally, there are other metrics for exploring whether NIO is cheap compared with its peers. Including the discounted cash flow model. Experts running their own calculations suggest that NIO is undervalued by around 14%.
Industry-leading tech
NIO has demonstrated impressive growth to date. Car sales have grown from 8,101 in 2018 to 91,429 in 2021. In fact, in each of those years, NIO was able to double production. It seems unlikely that production will double again in 2022 given the impact of Covid. But historical growth resembles that of Tesla.
Looking forward, I’m optimistic about the firm’s ability to keep growing. And that’s because of the strength of its offering.
The company is also using the latest technology, including battery-swapping tech that allows users to change their empty batteries for full ones in a matter of minutes.
The Shanghai-based company also has seven cars on offer. This is particularly important as choice is normally positive for generating sales. Several NIO vehicles beat their Tesla counterparts on range and are packed full of gadgets, including voice-activated window and boot opening.
Top pick for growth
Growth stocks don’t form a particularly large part of my portfolio. Instead, I prefer investing in value and using a compound returns strategy.
However, I’m bullish on NIO and at $11, I’m looking to pick up more of this stock at a discounted price.
