Where will Nio stock be in 3 years?

Nope (NO 2.45%)a major electric vehicle (EV) maker in China, went public just over six years ago at $6.26 per American Depositary Receipt (ADR). It initially impressed investors with its rising shipments, and its stock rose to an all-time high of $62.84 on February 9, 2021.

But today, Nio’s stock is trading at around $6.50. The bulls retreated as his supplies cooled, his margins fell and he posted more losses. Rising interest rates have squeezed valuations, and macro headwinds from China have exacerbated that pressure. Could this underperforming EV stock bounce back and set new all-time highs over the next three years?

Image source: Nio.

What happened to Nio after the IPO?

Nio sells a wide range of electric sedans and SUVs, but it differentiates itself from its peers with its swappable batteries. These batteries can be quickly changed at Nio battery exchange stations as a faster alternative to traditional electric vehicle chargers.

Nio began delivering its first vehicles in 2018. Its deliveries more than doubled in both 2020 and 2021, but slowed significantly in 2022 and 2023. This deceleration can be attributed to supply chain constraints related to pandemic, weather-related disturbances, macro. headwinds in China and intense competition in a cooling electric vehicle market.

Data source: Nio. YOY = Year Over Year.

But in the first half of 2024, Nio’s deliveries accelerated as it increased its market share, launched new high-end vehicles such as the ET7 Executive Edition sedan, expanded its Onvo smart vehicle brand , cheaper, in China and sold more vehicles in Europe.

Nio vehicle margin fell from a record high of 20.2% in 2021 to 9.5% in 2023 as a result of price cuts from adze (TSLA 0.45%) and other competitors have reduced their pricing power. However, its vehicle margins expanded again year-on-year in the first half of 2024 as it expanded its businesses, overcame its supply chain issues and sold a more sea ​​of ​​state-of-the-art vehicles.

From 2019 to 2023, Nio’s revenue grew at a compound annual growth rate (CAGR) of 63%, from 7.83 billion yuan to 55.62 billion yuan ($7.93 billion). However, the net loss widened from 11.41 billion yuan to 21.15 billion yuan ($3.02 billion).

Nio’s vehicle margins are finally stabilizing, but it is still expanding its capital-intensive battery exchange networks in China and Europe. Increased expenses, along with higher tariffs for Chinese electric vehicles in Europe, are likely to keep its business unprofitable for the foreseeable future.

What will happen to Nio in the next three years?

From 2023 to 2026, analysts expect Nio’s revenue to grow at a CAGR of 27% to 115 billion yuan ($16.4 billion) as it narrows its annual net loss to 9.38 billion yuan ( 1.34 billion dollars). Most of this growth should be driven by the Chinese market, but should also be complemented by gradual expansion into Europe. It also plans to launch its cheaper Firefly smart car for its European customers by the end of this year.

If Nio meets those expectations in 2026, it would be comparable to Tesla between 2017 and 2018, when its revenue rose from $11.8 billion to $21.5 billion. Tesla cut its net loss from $1.96 billion to $976 million in those two years.

Investors shouldn’t expect Nio to replicate Tesla’s explosive growth trajectory, as the EV market is more mature and saturated than it was six years ago. But just as Tesla was backed by heavy subsidies from the US government, Nio is still heavily subsidized by the Chinese government, which has pumped billions of dollars into the company over the past four years. This support should prevent it from going bankrupt anytime soon.

Where will stocks be headed in the next three years?

With an enterprise value of 93.41 billion yuan ($13.32 billion), Nio shares look very cheap at 1.4 times this year’s sales. By comparison, Tesla trades at 8.4 times this year’s sales.

That’s because headwinds from China, rising tariffs on Chinese electric vehicles and trade disputes between the US and China continue to weigh on Nio’s valuations. It will also likely take a few more Fed-led interest rate cuts to push investors back into unprofitable growth stocks like Nio. But if those headwinds dissipate, Nio’s valuations could rise quickly.

If Nio meets analysts’ estimates through 2026, grows revenue another 20% in 2027, and trades at a reasonable 4x sales, its stock could rise nearly 500% from its current price. That would be an incredible three-year gain, but it would still fall short of the nearly 870% gain needed to retake its all-time high since early 2021.

If you followed Nio during the meme stock rally, you’ll have to wait a long time to break even. But if you don’t already own Nio, this could be a great time to buy this speculative electric vehicle stock as a contrarian play in the Chinese market.