NIO (NYSE:NIO) shares have pushed downwards again in recent months. The stock is down 10% over one month and 39% over one year. Clearly, it’s not been a good story for investors.
However, volatility creates opportunity. And with the stock currently trading just above $8, and at just 1.8 times sales revenue, I believe we’ve got a great entry point.
But valuation isn’t the only reason for my bullish sentiment. Let’s take a closer look at why I’m backing NIO to rebound in the near future.
Deliveries will improve
There were some concerns about a slowing pace of growth. Much of this was engendered by China’s prolonged Covid lockdowns which impacted factory production last year as the Omicron variant spread around the nation.
NIO delivered 6,658 electric vehicles (EVs) in April — a year over year growth rate of 31.2%. However, that belies the fact that April 2022 was a bad month, amid the height of the Chinese Omicron lockdowns. April 2023 disappointed investors somewhat as the firm adjusted its production lines and focused on its transitions to sedans.
So why buy now? Well, sometimes it’s best to buy when things look at their worst. From here on, I expect production to ramp up significantly. And this is reflected in forecasts. Analysts are projecting NIO’s revenue in H2 to surge to $7.3bn, from an estimated $4.3bn in H1.
Shift towards saloons
EV sedans, or saloons as we refer to them in the UK, are increasingly popular in China. NIO has responded by steadily ramping up production of these, including the ET7 and ET5, at the expense of SUV production.
NIO’s sedan delivery share has increased again to 74% in April, up from 69% in March and 56% in December.
Why do I like this? Well, NIO has been developing its strategy over the past nine years, and I’m willing to believing that this shift towards sedan production reflects demand within the market.
That’s not to say it’s ignore the SUV market — it’s recently launched the ES6 — but the sedan market could be a big winner for NIO.
Breaking even
It can be hard to value companies that are constantly losing money. But when a company breaks even for the first time, this can result in a revaluation — normally to the upside.
NIO isn’t anticipating making a profit until 2026 — this had been 2025 but it’s been pushed back as China’s Covid lockdown impacted the firm’s development.
But in 2024, NIO is expected to lose $0.31 per share — each share is currently valued at just over $8. It’s a fine margin, and with some tailwinds, it’s entirely possible that breakeven point could be achieved next year.
It is expected to generate $17.6bn in revenues next year — the highest of China’s three EV newcomers — the others being Li Auto and XPeng.
Opportunity beckons
I appreciate that NIO, like other Chinese companies, could face challenges trying to access the lucrative US market. This concern has been widely voiced. But equally, China is a huge market itself.
I’m continuing to buy the stock. I find the valuation particularly attractive and I believe its tech-heavy premium EVs are among the best on the market. It’s a company on the road to success.
