Nio (NYSE:NIO) makes the most expensive electric vehicles in China. People often call the company the “Tesla of China.” It more than lives up to this name, since it has been doing better than Tesla stock in recent months. Still, we think Nio stock is undervalued and that shares of the Chinese company that makes electric cars could reach $100 and more.
Let’s think about how Tesla and Nio are alike again: Tesla is worth $580 billion, while Nio is only worth $74 billion on the market.
Some of this difference can be explained by Tesla’s solar and energy storage businesses, but Nio doesn’t have either. That’s fine, because most of the value is put on EV dominance and not on the other businesses. We think Nio has what it takes to take over the largest market for electric cars in the world.
So the right question to ask is, “How high can NIO stock go?”
Nio Stock is going slow and steady.
Let’s get this out of the way: We think Can NIO Stock Reach $1000 Archives.
But there’s a catch: it will take a while for people who own Nio stock to see that much-talked-about $100 per share.
First, let’s try to figure out why Nio will be the most important EV maker in the world.
The company has the best technology platform on the market, which lets them make EVs with super high performance that only a few other companies can match.
Nio is also betting on its battery swapping model to lower the price of these electric vehicles. So, it’s one of the best EV companies in the world at finding the best balance between price and performance for customers. In China, the company has pretty much already won the war because the government has said it will help Nio grow.
Soon, the company will start selling cars in Norway, which is in Europe, and it should soon become a big player.
In North America, the road will be longer and more difficult, but the company has enough technological advantages and a strong enough brand to at least make a small dent in the EV market there.
What They Mean
We make a few important assumptions to come up with a $100 price prediction for Nio stock.
First, we assume that EVs will make up 35% of the world’s total auto market by 2030.
We think that’s pretty reasonable. Ford (NYSE:F), General Motors (NYSE:GM), and Volkswagen (OTC:VWAGY) already plan to have between 40% and 50% of their cars be EVs by 2030. So, 35% seems like a good middle ground.
Second, we think that Nio can get 8% of the market in China. That’s about the same number of high-income earners as there are people in China. Here, we’re assuming that Nio has a big share of the high-end EV market in China and can also do well in lower-end markets. This also makes sense to us because Nio has a “home court advantage.”
Third, we think that Nio can get about 4% of the market outside of China. That is half of the rate in China. We think that’s fair because it takes into account the fact that there is more competition around the world.
Fourth, we think that Nio will have a long-term gross margin of 25% and an operating expense rate of 10%. This gives Nio a 15% operating margin. This is a lot like how Tesla works right now. We don’t see any reason why Nio can’t use the same economies of scale to make money in the same way.
What You Need to Know About Nio Stock
Based on these main assumptions, our modelling shows that Nio will earn $5.50 per share by 2030.
Using a forward earnings multiple of 25X, this means that the price target for Nio stock in 2029 is close to $140. Using a discount rate of 9%, that means the price goal for 2021 is close to $70.
So, we think Nio stock is undervalued now and can and will rise to $100 over time, but we don’t think shares will double overnight.
That’s why Nio is the best EV stock to buy right now in my Next-Gen Mobility portfolio in my subscription newsletter, Innovation Investor. This portfolio includes the world’s top emerging megatrends and the best stocks to buy in each.
But it’s not the only EV stock to buy, and my “Top Stock” designation can change every month so you can make the best choice based on the most recent information. These companies are the best when it comes to EV technology that changes the way things are done. Each has a management team that is second to none and huge long-term potential.
Subscribe to Innovation Investor today to find out which company will be my next “Top Next-Gen Mobility stock.” You’ll also learn about my other EV standouts, such as a secret startup that’s leading the self-driving revolution, a company I consider my EV “sleeper” stock of the decade, and a company that’s developing a cutting-edge solid-state battery solution for the cars of the future.
Sign up for Innovation Investor today to see my full list of innovative next-generation EV stocks.
At the time this article was written, Luke Lango had no direct or indirect positions in any of the stocks or bonds mentioned in it.
Luke Lango gets you in on the ground floor of world-changing megatrends by helping you find early investments in industries with fast growth. It’s the main idea of his best service, Innovation Investor, which is all about technology. Sign up for Innovation Investor today to see all of Luke’s innovative, cutting-edge stock picks.
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