NIO (NYSE: NIO) shares have been listed on the New York Stock Exchange for over four years now. And in that time, the Chinese electric vehicle (EV) manufacturer has grown its revenue substantially, first in mainland China and more recently in continental Europe.
Yet despite this progress, the NIO stock price hasn’t yet followed suit. So could the shares at $9 make me rich long term?
Blue-sky thinking
The company motto of NIO is ‘Blue Sky Coming’. This relates to a time when William Li, the co-founder and CEO of NIO, would look out from his window in Shanghai and see the smog darkening the skyline of the city.
Li said: “I founded NIO in 2014. At that time, the pollution in China made the sky grey. I wanted to make some impact on the environment and bring the blue sky back“.
The Chinese government also wants less pollution, largely through the mass adoption of EVs. So I do like that the company is aligned with official government policy on this issue. It’s far better to go with the grain of society than against it.
Innovation
With current technology, it will often take an hour or so to fully recharge an EV battery. But with NIO’s battery-swapping stations — where a depleted battery is swapped for a fully charged one — the whole process can take as little as three minutes. That’s great for NIO’s customers, who have the option of subscribing to this battery-as-a-service package.
Of course, the downside is that these stations cost money to first build and then maintain. As of 31 December 2022, the automaker has 1,315 of them in operation, and plans to have 4,000 in operation by 2025 (including 1,000 outside China).
I have no idea whether this battery-swapping technology will give NIO a long-term competitive advantage or simply become a money pit. But it does demonstrate that the company is willing to take innovative risks to differentiate itself from EV rivals.
That’s important, as differentiation will be key as competition heats up. Beyond Tesla, it faces domestic competition from the likes of Li Auto, XPeng, and BYD. Then there are the legacy automakers investing heavily to catch up in the EV space. So I see increasing competition as a risk here.
However, the sheer size of the EV market in China should produce a handful of big winners. NIO looks well positioned to become one of them.
A cheap growth stock
For 2022, the firm delivered 122,486 vehicles in total, an increase of 34% year on year. Full-year revenue for 2024 is forecast to reach around $18bn. With a current market cap of $15.5bn, that means the shares are now valued at less than 1 times forward sales. That’s unbelievably cheap for a company still growing rapidly in an expanding industry.
Despite being labelled the ‘Tesla of China’, the company is 40 times smaller than the US automaker’s current market valuation. Unlike its rival, NIO isn’t yet profitable. But if it can start producing earnings sooner rather than later, I believe the shares at $9 have immense potential to enrich shareholders.
As such, I’m going to start building a long-term position in the stock as soon as I have the capital available.
