NIO (NYSE:NIO) shares are currently down 53% over the past 12 months. The Chinese electric vehicle (EV) firm’s share price collapsed along with many other growth stocks in late 2021 and early 2022. But after a three-month bull run, the stock is falling again.
Now at $18, I’m seeing this as an opportunity to buy more NIO stock. Here’s why.
Valuation
NIO is yet to make a profit and is unlikely to do so until 2024. In fact, Tesla is only EV company to be truly profit-making. However, the Shanghai-based company has demonstrated its ability to continually grow revenue. The firm doubled revenue in each of the years between 2018 and 2021, but 2022 might be different.
There’s also a possibility that profitability might be pushed back by the lockdowns and zero-tolerance to Covid-19 that we’re seeing in China this year.
The firm currently has a price-to-sales (P/S) ratio of five. To me, that looks remarkably cheap. By comparison, Tesla has a P/S ratio of around 15.
But that’s nothing compared to the other American peers. Lucid has a P/S ratio of 153 while Rivian has a P/S ratio of 45.
Growth prospects
I actually believe NIO’s EVs are market-leading. The issue is they’re not produced or sold as widely as Tesla. But that’s something the company is looking to remedy. A second factory is opening in China this year and NIOs are now been sold in Germany, the Netherlands, Denmark, Sweden and Norway.
Unfortunately, I haven’t driven a NIO, but numerous car review videos have led me to believe it can rival Tesla outside of China. For one, the long-range version of its new ET7 can go as far as 1,000km on a single charge, putting it some distance ahead of its Tesla equivalent.
NIO’s vehicles also possess unique battery-swapping capabilities. This allows drivers to pull up at a NIO garage and swap their empty battery for a full one in a matter of minutes — far quicker than conventional charging.
And compared to Chinese peers XPeng and Li Auto, NIO has an impressive range of vehicles and this is key to growth. Li has only just launched its second vehicle — albeit a very impressive one.
Risks
While NIO certainly has some impressive credentials there are, of course, risks, some of which are geopolitical.
For one, China’s economy appears to be entering a period of slower growth. In fact, there are some big concerns around liquidity and debt amid ongoing lockdowns, power shortages and a housing crisis. A slower economy is unlikely to be good for indigenous consumption.
But it is also worth considering the impact of Western sanctions on China. We saw these develop with the US under Trump. NIO naturally has a sizeable audience in China, but the biggest markets still lie in Europe and the US.
Despite this, I’d still buy more shares at $18. I think the future is bright for this nascent EV firm.