Nio Stocks Likely To Rise Back Strong From Current Levels

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Nio (NYSE:NIO) the stock has been underperforming with a 52% decline in the last 12 months. Most of the corrections can be attributed to factors that include dilution and bookkeeping of earnings. In addition, there are concerns that Nio shares will be removed from the US exchange.

However, if we look at things from a business perspective, there are positive developments on an ongoing basis. Therefore I believe that Nio shares are attractive at current levels. In particular, with companies that have two major revenue growth catalysts.

It should be added at the outset that for 2021, Nio is reporting deliveries of 91,429 vehicles. On a year-on-year basis, vehicle shipments increased by 109.1%.

It may be unrealistic to expect this growth to persist amid increasingly fierce competition. However, with a positive industry pull, growth will remain attractive.

Positive Catalyst for 2022

There are two important reasons to be bullish on Nio’s growth in 2022. First, Nio plans to pursue aggressive international expansion. The company already exists in Norway. This year, Nio plans to expand in Germany, the Netherlands, Denmark and Sweden.

It should be noted that crude oil prices have surged above $100 per barrel due to ongoing geo-political tensions. One way for Europe to reduce its dependence on oil and gas is to accelerate the adoption of electric vehicles.

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

Another factor that may support growth is a diversified product offering. The new launch in 2022 will help make inroads in newer markets and boost shipment growth.

For example, the ET5, a mid-size sedan is slated for launch in September 2022. This model is likely to have a range of more than 1,000 kilometers on a single charge. With expansion in several countries, the sedan is likely to gain shipping traction until 2023.

Apart from that, Nio will also start shipping the ET7, which is the flagship premium sedan in March 2022. The main point is that the company has an attractive product line, which is likely to ensure steady growth in shipments.

The electric vehicle industry already has stiff competition. The ET7 Nio will be the first autonomous driving model with super-sensing technology. It is technological differentiation that might help companies stay ahead of the competition. Nio had invested on that front.

Strong Financial Position

Nio has increased its cash buffer in recent quarters. Current financial flexibility implies that Nio is fully funded for the next 12-24 months.

In Q3 2021, the company reported cash and equivalent of $7.3 billion. The company also raised $2 billion in gross proceeds from offerings on the market in November 2021.

With the new model and expansion in several countries, Nio is also planning aggressive capacity expansion. By mid-2022, Nio is expected to double its assembly capacity to 240,000 units.

Furthermore, according to German Bank analyst Edison Yu, 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 financial headwinds.

Nio has now scrapped plans to build a factory in Europe. However, as sales gain traction overseas, it’s likely the company will look at manufacturing in multiple locations.

Underline

The long-term bull trend seems far from over for Nio shares. Therefore, a deep correction presents a good buying opportunity.

As vehicle shipments swell, it is likely that the main margin will also increase. Once cash flow improves, Nio shares will be positioned for a meaningful rally. Vehicle margins have been steadily increasing.

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

On the date of publication, Faisal Humayun does not hold (either directly or indirectly) any position in any of the securities mentioned in this article. Opinions expressed in this article are those of the author, subject to InvestorPlace.com Publishing Guidelines.

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