Where on earth will Nio stock be in 1 year?

Nio stock has demonstrated extraordinary volatility over the past 12 months, but where will it be in a year’s time? Dr James Fox explores.

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A couple years ago I was confident that Nio (NYSE:NIO) stock would soar as the real contender to Tesla (NASDAQ:TSLA). However, I was wrong. The Shanghai-based EV maker had so much promise, but it failed to deliver.

The value of Nio stock has fallen $80bn from its peak. Today, some investors are wondering whether Nio will even be able to survive the next few years amid oversupply concerns in China and increasing price competition.

So, where will Nio stock be in a year? Let’s explore.

What the bulls say

Many Nio bulls contend that the company remains a strong contender in the competitive Chinese EV market because it’s leveraging innovative technologies and launching a lower-priced Onvo brand to capture higher sales volumes.

The Onvo L60 targets mainstream consumers, offering advanced features like battery-swapping technology, with an affordable price tag — the L60 is priced at $30.5k. Pre-orders are reportedly above expected levels, which is promising.

Some investors believe the Onvo brand could help Nio increase its sales volumes while leveraging existing technology and production facilities. Nio has struggled to achieve sales volumes in excess of 20k a month with its existing high-end offering.

We don’t know enough yet, but the strategic brand expansion could allow Nio to boost sales and cut losses through higher volumes. We also know Nio has a relatively strong cash position, which would sustain it for almost three years at the current burn rate.

You’ve got to be a little fearful

There’s plenty of long-term potential in the EV market. However, concerns persist over Nio’s considerable losses — last year Nio lost around $35,000 per vehicle sold — intensifying competition and susceptibility to price wars.

Despite projected profitability by 2027, many analysts are less bullish about the company’s financial position. Debt has been creeping up, there isn’t much margin for error with the company’s burn rate, and share dilution could be on the cards if it needs to raise more money.

Moreover, China’s EV overcapacity exacerbates these issues, and that’s reflected in Nio’s low asset utilisation rate. Evidence suggests that Nio’s asset utilisation — how much its factory assets are being used — is falling.

I’m also a little concerned about Nio’s innovative battery-swapping technology becoming obsolete. It sounded like a great idea a couple of years ago when it took 30 minutes to charge an EV. But nowadays Nio’s peers can be charged in just 10 minutes. It’s making me wonder whether the billions of dollar invested in battery-swapping facilities will be wasted.

Where next?

Where will Nio stock be in 12 months? It’s such a hard one to call. Nio actually surprised us positively with strong delivery growth in the first quarter. That’s quite out of character.

Momentum is a queer thing in business, and I think Nio might be on something of a roll. Nio delivered 15,620 vehicles in April, a 134.6% year-on-year increase.

I’m expecting Nio to report strong growth again in May, but that doesn’t make me bullish in the long run as its peers are in stronger financial positions.

They’re so many variables as to where Nio could be in a year. And it’s a very hard question to ask myself. I certainly don’t expect Nio to be trading above $10, but there could be some growth from the current $4.80.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Fox has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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