The stock of NIO Inc. (NYSE:NIO) has recently been in reverse. NIO’s stock has been down 70% from its all-time high despite being one of the world’s most exciting and promising 100% electric vehicle (“EV”) manufacturers. NIO’s stock has taken a beating for a variety of reasons. The most straightforward answer is that NIO is a Chinese firm, and Chinese equities are currently out of favor. However, with an auditing contract on the horizon, NIO’s stock should rise again.
Furthermore, NIO reported a record quarter in July, demonstrating strong demand for the company’s automobiles. NIO is expected to disclose Q2 results on September 7th. Analysts’ (consensus) projections are for $1.41 billion in revenue and a GAAP loss of 20 cents. Still, the corporation, in my opinion, can report better. Furthermore, given favorable market dynamics, NIO should continue outperforming consensus analyst predictions in future quarters. As a result, reduced uncertainty, improved growth, and profitability could propel NIO’s share far higher in the next years.
Addressing The Delisting Concerns
Many investors feel a shiver down their spine when a Chinese firm is mentioned. Many notable Chinese equities (including NIO) have plummeted in the previous two years due to delisting fears and other uncertainty. Chinese equities were extensively held because of their capacity to raise sales swiftly, generate profits, and demonstrate significant growth. However, due to the delisting frenzy, many market players will not touch Chinese firms with a ten-foot pole. It’s not only about being delisted. Other variables such as China’s slowing economy, profit declines, fears about Chinese government meddling, geopolitical events, and other factors have led to the decline in the popularity of Chinese equities. However, these uncertainties are temporary, and the delisting worries remain the major issue.
So, let’s talk about the prospect of delisting. NIO is subject to delisting concerns as any other big Chinese stock. Because of the possibility of delisting, Baidu (BIDU), Alibaba (BABA), Pinduoduo (PDD), and many more high-quality Chinese businesses trade at low prices. On the other hand, Chinese firms trade at considerable discounts to their American counterparts and offer extraordinary development potential. Perhaps most crucially, delisting worries are likely exaggerated.
Washington and Beijing are nearing a deal that would provide US regulators access to audits of Chinese businesses listed on US markets. The critical uncertainty reducing NIO’s value, market cap, and stock price is the prospect of delisting due to auditing concerns between the two economic heavyweights. I’ve always argued that major delistings are unlikely because of the negative ramifications for the Chinese economy and government. Furthermore, deteriorating economic relations are not in the interests of the United States, as the two nations have considerable financial and commercial ties. As a result, we should continue to see movement on the auditing deal, and NIO’s stock should skyrocket if an agreement is reached. The stock might double if an auditing agreement is achieved.
NIO’s Remarkable Potential
Another aspect that is being overlooked is NIO’s enormous potential. NIO is growing with its first European facility, aiming to offer battery switching stations and other power supplies to NIO clients, accelerating development in countries including Germany, Sweden, and the Netherlands. NIO is also collaborating with Shell (SHEL) to create battery switching stations worldwide, beginning this year in China and Europe. While NIO is gaining traction and creating its infrastructure in Europe, the company’s local market has huge potential.
China has the largest EV market in the world. It is expected that roughly 4 million passenger EVs will be sold in China this year, representing a 31% rise year on year. Last year, China sold around 21.5 million passenger automobiles.
We observe that EVs account for about 18% of overall passenger car sales, a significant number that is expected to rise further in the future years. Furthermore, China accounts for 32% of the global passenger car market. The incredible growth dynamic in the world’s most important automotive market (NIO’s domestic market) should give the firm significant growth potential for many years as it develops.
In June, NIO set a new record for sales (60% year on year), delivering approximately 13,000 vehicles to consumers in a single month. Furthermore, we are witnessing amazing development as the firm enters its fifth year of selling high-end performance EVs. If you’re concerned about poor sales in April and May, it’s due to coronavirus lockdowns, which should be a one-time occurrence. More significantly, NIO followed up with another strong quarter in July, delivering over 10,000 vehicles and growing by 27% year on year. NIO delivered 25,059 vehicles in the fourth quarter, much above its projected 23,000-25,000 units. NIO has delivered roughly 228,000 automobiles as of July 31st, 2022.
Risks to NIO
Despite my optimistic perspective, there are some hazards to my argument. The China delisting fears may persist. As a result, delisting worries and other negative China-related factors may continue to weigh on NIO’s stock price. Furthermore, the firm may encounter numerous manufacturing challenges and may not achieve the production capacity I anticipate in time. Furthermore, NIO’s vehicles may see a demand reduction, in which case the company’s stock price may suffer. NIO is a high-risk investment, but there is significant upside potential if everything goes as planned.
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