Nio Stock Has 77% Upside Potential

Stock Market
  • Nio (NIO) stock is poised for a 58% rally in the next few quarters from oversold levels.
  • New vehicle models will boost delivery growth once supply chain headwinds are navigated.
  • An aggressive international expansion plan is another catalyst for growth.
Source: Sundry Photography /

Nio (NYSE:NIO) stock has witnessed a sharp correction in the last six months. During this period, the stock has plunged by over 60%. It finally seems that Nio stock is worth accumulating at current levels of $14.63.

It’s worth noting that electric vehicle (EV) stocks have faced multiple headwinds. For Nio, a potential delisting from the U.S. exchanges has worried investors. Further, a surge in Covid-19 cases in China has impacted deliveries and aggravated supply chain issues.

Amidst these concerns, there is hope for some positive news for the industry. Chinese authorities are in talks with automakers for a potential extension of EV subsidies. Positive news on this front seems likely, particularly with the prospects of a global economic slowdown.

Earlier in May 2022, Nio stock touched a new low of $11.67. The stock is already up by 25.3% from lows. In all probability, the stock has bottomed out and looks good for accumulation.

Ticker Company Price
NIO  NIO Inc. $14.63

New Models Can Boost Growth

Recently, Nio’s cofounder and chairman, William Li, opined that the supply chain is the key challenge, not consumer demand. Once supply chain issues are navigated in the next 12 to 24 months, Nio is positioned for robust growth.

One reason to be bullish is the aggressive introduction of new models with enhanced features. Nio launched the ET7, a smart electric sedan, in January 2021. Deliveries for the model have commenced in March 2022. Nio claims that the sedan has a range of 1,000 kilometers.

Additionally, the company launched the ET5, a mid-size premium smart electric sedan, in December 2021. Mass deliveries for the EV are scheduled to begin in September 2022. The model also has a range of over 1,000 kilometers and will be launched in China, as well as in Europe. The model is already engineered to adhere to the European safety standards.

As of December 2021, Nio reported cash and equivalents of $8.7 billion. Therefore, there is ample financial flexibility to invest in product development. It is likely that the introduction of new models will continue to drive growth.

Additionally, Nio plans to expand its presence in 25 countries by 2025. The focus is likely to be on Europe. International expansion is another catalyst for sustained growth in deliveries.

Concluding Views on NIO Stock

For fourth quarter 2021, Nio reported a vehicle margin of 20.9%. The margin expanded by 370 basis points on a year-over-year basis. As vehicle deliveries accelerate, further margin expansion is likely. Therefore, I would not be concerned about near-term operating level losses.

I also believe that once sales growth gains traction in Europe, Nio will consider an overseas manufacturing facility. That can further boost operating margins. Nio is also targeting exporting cars to the Southeast Asian markets. That’s another region that can be rewarding for the EV maker in the long-term.

Recently, Bank of America (NYSE:BAC) analyst Ming Hsun Lee upgraded Nio stock to a “buy” rating. Lee believes that Nio is poised for a reversal in the second half of 2022 from the perspective of sales and margin. The analyst has a price target of $26. This would imply a 77% upside potential from current levels. This upside can potentially come in the next few quarters considering the deep correction.

On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.

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