NIO: Despite the Chip Shortage, Deliveries Could Double This Year, Says Analyst

Chinese electric car company NIO (NIO) is due to report its Q1 earnings on April 29, and Mizuho analyst Vijay Rakesh is optimistic — rating the stock a “buy” with a $60 price target. (To view Rakesh’s track record, click here)

As the analyst advises in his recent note, NIO grew its deliveries more than five-fold year-over-year in March, to about 20,100 vehicles, as production of its ES8 and EC6 SUVs ramped — far faster than the global car industry’s production growth of 16%, or the 77% increase in China unit sales, either one. And NIO’s sales exceeded its own published prediction of 19,500 deliveries.

Despite well-publicized and industry-wide supply problems with semiconductors needed for car production, Rakesh believes the company’s sales are likely to “remain strong through 2021E,” roughly doubling through year-end even if production slows somewhat in near-term Q2, as the industry works out the kinks in its semiconductor supply chain.

Rakesh forecasts deliveries of 87,000 EVs this year, 141,000 EVs in 2022, and 223,000 in 2023.

Helping NIO maintain this strong growth trend, says the analyst, is the company’s leading position in “battery swap stations in China,” where an EV’s depleted batteries can be charged — or alternatively, switched out for fully charged batteries in minutes. (Because NIO sells cars separately from the batteries, and provides the latter “as a service,” battery swaps are included in the latter’s price).

Rakesh estimates that it costs NIO between $450,000 and $1.5 million to set up a battery swap station, and another $300,000 to stock it with batteries in inventory, although both these costs will decline in the future as “standardization” is implemented across the industry in accordance with government policy. Over the next four years, Rakesh notes that NIO will be growing from the 500 or so stations it plans to have by the end of this year, ultimately setting up as many as 5,000 such battery swap stations in partnership with the state-owned Chinese oil and gas giant Sinopec. The analyst further notes that NIO will be allowing owners of Ford Mustang-E electric cars to utilize its battery charging stations, thus growing NIO’s customer base and “helping NIO amortize battery station costs faster.”

What does all this mean for NIO in terms of dollars and cents?

Rakesh estimates that NIO will generate $5.2 billion in revenue and lose $0.29 per share this year, but grow revenues 85% to $9.6 billion in 2022, and turn its first profit that year ($0.14 per share). Despite the company turning profitable in 2022, however, the analyst chooses to base his $60 price target not on earnings, but on a valuation of 8.8 times 2022 estimated sales. (Perhaps because saying that NIO is worth “428 times 2022 estimated earnings” would sound a bit too rich.)

In any case, by 2023, the analyst sees revenues growing another 73%, reaching $16.6 billion, and profits growing six-fold to $0.88 per share. Assuming NIO hits those numbers, its P/E based on 2023 earnings would drop to a somewhat more palatable 68x earnings.

Nio has strong backing from the rest of the Street. Barring 3 Holds, all 6 other analysts to have published a review over the last 3 months recommend the stock as a Buy. The Moderate Buy consensus rating is accompanied with a $62.30 price target, which implies a 72% upside from current levels. (See NIO stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.