2024: NIO’s Big Year (NYSE:NIO)

I’ve been bullish on NIO Inc. (NYSE:NIO) since before its epic 2020 rise and subsequent decline. However, I recently took a more cautious approach as losses mounted and NIO continued diluting its stock. Moreover, I recently re-entered NIO’s stock as we’ve seen considerable improvements in profitability metrics and deliveries, as well as a constructive move toward sustainable growth and increased income.

Despite the additional dilution to existing shareholders, NIO should benefit from the recent strategic investment from the Abu Dhabi fund. The economy is coming out of a slowdown, and a more accessible global monetary environment should help NIO. Also, NIO recently unveiled its new ET9 executive flagship sedan, and the company has other promising projects and initiatives that should boost growth and expand profits. Despite near-term challenges, NIO should continue improving operations, leading to increased profitability and a higher stock price as we advance.

The Technical Image – Turning Bullish

NIO’s stock may have finally bottomed around $7. Moreover, $7.50 is the ultra-low level at which Abu Dhabi’s capital injection came in. We see a base forming in NIO, and the next move may be higher as the breakout above $10 materializes. We’re witnessing improved technical conditions as the RSI, CCI, full stochastic, and other technical gauges strengthen. Momentum is improving, and the sustainable move higher may accelerate throughout 2024.

Stellar Smart Vehicle Lineup

Including NIO’s ultra-luxurious flagship executive ET9 sedan, NIO’s stellar lineup now has nine all-electric smart vehicles. NIO has also updated its ES6, ES8, and EC6 vehicles. NIO has a distinct advantage with the most versatile lineup of any luxury pure EV maker. NIO’s battery-swapping technology also gives the company a unique competitive advantage. NIO makes beautiful, high-performance, ultra-luxurious smart EVs and sells its vehicles at a competitive price point. This dynamic should enable its sales to continue surging in the future. NIO’s profitability also improved notably last quarter and should continue expanding moving forward.

Significantly Improving Financials

NIO’s financials suffered due to the global economic slowdown, transitory China-related factors, competition, the introduction of new vehicles, and other temporary factors. However, NIO’s issues aren’t systemic, and we’ve seen a considerable bounce back in profitability metrics last quarter. This highly constructive trend suggests that growth could continue accelerating, leading to higher profits in future quarters.

Vehicle sales increased to 17.4B RMB in Q3, a 46% YoY increase and a 142% spike over the previous quarter. Total revenues surged to 19B RMB, nearly a 47% YoY increase. Also, profitability roared back, as NIO reported a vehicle margin of 11% over the 6.2% in the previous quarter. Gross margin also improved significantly to 8% from just 1% in Q2. While NIO’s operating loss remains considerable, we see a substantial improvement over the previous quarter, implying NIO should continue improving operations and growing more profitable as we advance.

Additionally, NIO’s R&D costs decreased by 9.1% from Q2, illustrating the company’s emphasis on reducing costs and improving profitability. SG&A expenses also increased slower than NIO’s revenue growth, illustrating that NIO is becoming increasingly profitable with scale. Due to the improved efficiency, NIO’s net loss decreased by about 25% over the previous quarter.

The Abu Dhabi Investment And Other Developments

CYVN Holdings, an investment vehicle based in Abu Dhabi, has invested $2.2B in NIO, acquiring a 20.1% stake. This strategic investment should enable NIO to boost sales and improve cash flow, leading to increased profitability. Also, the deal allows for the investment group to nominate two directors to NIO’s board, a dynamic that should lead to increased cost-cutting and improved profitability as we advance.

NIO will spin off its battery manufacturing unit as part of a broader profitability strategy. This move should enable NIO to concentrate on its core segments, leading to improved efficiency and faster profitability.

NIO plans to launch its cheaper Firefly brand in Europe in 2024, a full year ahead of schedule. More economical vehicles should enable NIO to gain market share in Europe and will likely contribute significantly to the company’s growth and eventual profits.

Revenues Likely To Skyrocket

NIO’s revenues should skyrocket by 50% plus in 2024. Also, while the consensus revenue estimate is $11.7B, we may see NIO beat this lowballed depressed sales figure. Higher-end estimates imply NIO could achieve revenues in the $13-$15B range, implying NIO could be trading close to one times forward sales here. Also, while 2025 consensus revenue estimates are around $16B, NIO may hit a higher-end estimate target of $18-$20B. It’s early to value NIO on a P/E basis, but at about one times forward sales, NIO’s valuation is cheap here, and we could see its stock price move considerably higher as we advance.

Where NIO’s stock could be in the future:

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Source: The Financial Prophet

Once NIO demonstrates it can sustain profitability, the stock should garner a higher multiple. For instance, Tesla trades at about a seven times forward P/S ratio. The highly unprofitable Lucid also trades at around seven times forward sales, and Rivian trades at around four times forward sales estimates. So, why does NIO sell at only one-time sales? It’s likely because NIO is an unprofitable Chinese EV manufacturer. However, much of the risk associated with owning Chinese equities has been eliminated, and NIO’s sales multiple could expand considerably once it illustrates it can sustain profitability. Therefore, NIO’s stock should go much higher as we advance.

Risks to NIO

Despite my constructive outlook, NIO faces several challenges. There is increased competition in the Chinese EV field. Also, NIO still has a long road to profitability ahead. NIO must demonstrate that it can produce and sell vehicles at a profit for its stock price to have a chance at moving substantially higher. NIO faces macroeconomic and geopolitical headwinds due to a slow global economy and China tensions. NIO continues burning cash and must decrease its cash burn rate quickly, or another round of capital injections and stock dilution is inevitable. Investors should examine these and other risks before investing in NIO’s stock.