Nio is Still a Buy at These Prices
The Chinese electric vehicle market has seen some major speed bumps this year. If it wasn’t enough that the industry is going through a global chip shortage and ongoing supply chain issues, Chinese EV makers were hit with a growing list of regulatory sanctions. On top of all of this, there is the ongoing threat of Chinese ADRs delisting from US markets due to not following US auditing laws when reporting financials. It should come as no surprise to anyone that domestic EV makers in China have seen their stocks plummet this year.
One of those EV makers is Nio (NYSE:NIO), the company made famous by its innovative battery swapping technology and sleek, luxury cars. Shares of Nio are down a staggering 40% in 2022, and its peers like XPeng (NYSE:XPEV) and Li Auto (NASDAQ:LI) are not faring much better.
Nio had to recently postpone the launch of its ES7 SUV because of the ongoing COVID-19 lockdowns in parts of China. Notably, Shanghai has had one of the longest lockdowns in the country, causing major production facilities like those of Nio and Tesla (NASDAQ:TSLA) to shut down for periods of time. There is a concern that these shutdowns will have an effect on delivery figures and sales for the month of April.
On Tuesday, it was reported that production facilities are reopening for automakers, something that both the companies and their shareholders are breathing a sigh of relief for.
Why Nio Can Still Outperform in 2022
Production stoppages are one thing, but at the very least, Nio still has a high demand for its vehicles. Another major announcement saw that the Chinese government is going to attempt to resolve the issues surrounding the rising costs of raw materials that are used in the production of EVs, specifically with their batteries. Given Nio’s reliance on cutting edge battery technology for its swapping services, the company is certainly positioned to gain from the government’s help.
But other issues have been resolved as well. Nio became a dual listed company earlier this year when it listed on the Hong Kong Stock Exchange. This spooked US investors into believing that Nio will delist from the New York Stock Exchange. The Chinese government also addressed this by citing it will adhere to the auditing laws of foreign countries where its companies are listed. Consider this to be the closest thing to an olive branch that China will be giving to the US right now.
Global expansion is also under way for Nio and the company expects to be in several new European markets by the end of the year. With a new production facility on the way, Nio will finally be able to grow its production capacity which investors hope will lead to a rise in sales and revenues.
The most important thing for Nio was to ensure that the government was still in its corner. The Chinese government has a stake in Nio, so it really is in its best interest to see Nio and other domestic EV makers succeed. Using a simple price to sales model, Nio is currently trading at around 5 times trailing sales. Compare this to Tesla (NASDAQ:TSLA) which has a price to sales ratio of 20, RIvian (NASDAQ:RIVN) which is 150, and Lucid (NASDAQ:LCID) which is 573. It’s easy to see why Nio is underpriced right now and should be a strong performer for the rest of the year.
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