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Nio Stock Is Likely to Bounce-Back Strong From Its Current Levels

InvestorPlace - Stock Market News, Stock Advice & Trading Tips Nio stock is likely to trend higher from current levels with international expansion and new model launches being upside catalysts....

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InvestorPlace - Stock Market News, Stock Advice & Trading Tips - InvestorPlace

Nio (NYSE:NIO) stock has been an under-performer with a downside of 52% in the last 12-months. A major part of the correction can be attributed to factors that include dilution and profit booking. Additionally, there were concerns on Nio stock being de-listed from the U.S. exchanges.

A Nio (NIO) sign outside of the company's facilities in Shanghai, China.
Source: Andy Feng /

However, if we look at things from a business perspective, there have been positive developments on a sustained basis. I therefore believe that Nio stock is attractive at current levels. In particular, with the company having two major revenue growth catalysts.

It's worth adding at the onset that for 2021, Nio reported delivery of 91,429 vehicles. On a year-on-year basis, vehicle deliveries increased by 109.1%.

It might be unrealistic to expect this growth to sustain amidst intensifying competition. However, with positive industry tailwinds, growth will remain attractive.

Positive Catalysts for 2022

There are two important reasons to be bullish on growth for Nio in 2022. First, Nio plans to pursue aggressive international expansion. The company already has presence in Norway. In the current year, Nio plans expansion in Germany, Netherlands, Denmark, and Sweden.

It's worth noting that crude oil price has surged above $100 per barrel due to ongoing geo-political tensions. One way for Europe to reduce dependence on oil and gas is accelerated adoption of electric vehicles.

In the coming years, Nio is likely to benefit from an aggressive expansion in the European region. Over the long-term, Nio plans to have presence in 25 countries by 2025. With a wider addressable market, Nio is positioned to maintain a healthy growth trajectory.

Another factor that's likely to support growth is a diversified product offering. New launches in 2022 will help in making inroads in newer markets and boosting deliveries growth.

As an example, ET5, a mid-size sedan is scheduled for launch on September 2022. The model is likely to have a range of more than 1,000 kilometres in a single-charge. With expansion in multiple countries, the sedan is likely to gain deliveries traction through 2023.

Besides this, Nio will also commence delivery of ET7, which is a flagship premium sedan in March 2022. The key point is that the company has an attractive product pipeline, which is likely to ensure steady growth in deliveries.

The electric vehicle industry already has intense competition. Nio's ET7 will be the first autonomous driving model with super sensing technology. It's technological differentiation that's likely to help companies survive the competition. Nio has been investing on that front.

Strong Financial Position

Nio has boosted its cash buffer in the last few quarters. The current financial flexibility implies that Nio is fully funded for the next 12-24 months.

As of Q3 2021, the company reported cash and equivalents of $7.3 billion. The company also raised $2 billion in gross proceeds from an at-the-market offering in November 2021.

With new models and expansion in multiple countries, Nio is also planning an aggressive capacity expansion. By mid-2022, Nio is expected to double its assembling capacity to 240,000 units.

Further, according to Deutsche Bank analyst Edison Yu, the annual production capacity is likely to increase to 600,000 units by the end of 2022. With a strong balance sheet, the company is unlikely to face any financial headwinds.

Nio has currently dropped plans for a European factory. However, as sales gain traction overseas, it's likely that the company will be looking at manufacturing in multiple locations.

The Bottom Line

The long-term bull trend seems to be far from over for Nio stock. The deep correction therefore presents a good buying opportunity.

As vehicle deliveries swell, it's also likely that key margins will improve. Once cash flows accelerate, Nio stock will be positioned for a meaningful rally. Vehicle margin has already been improving on a sustained basis.

Overall, at current levels, the downside risk seems limited. Accumulation can be considered with a medium to long-term investment horizon.

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

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