While I have my last article on Nio (NYSE:NIO), the heavy-duty Chinese electric vehicle (EV) manufacturer, trades Nio stock for $ 60, valuing the company at $ 93.6 billion, accounting for its fifth place one of the world’s largest car manufacturers by market capitalization.
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On February 1, Deutsche Bank analyst Edison Yu repeated his “buy” rating and $ 70 profit target. Hitting Yu’s target could allow Nio to become the world’s third-largest automaker.
This is why Volkswagen (OTCMKTS:VWAGY) and WORLD (OTCMKTS:I WILL) should look in their rear view mirrors.
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A lot has changed for Nio Stock in the past year
About 15 months ago, I didn’t have much good to say about the upstart EV manufacturer:
Like Taulli [InvestorPlace contributor Tom Taulli] points out that the company is burning up cash at such a rate, and that any future equity or debt financing arrangements will be highly one-sided to the lifeblood entity and terrible for current shareholders.
Nio’s Altman Z-Score, a predictor of future bankruptcy, is currently -4.45. That’s nowhere near where it should be to make investors feel warm, fuzzy.
“I wish I had better news for shareholders of Nio shares. But you can’t put lipstick on a pig. “
In retrospect, we of course know that Nio got stuck $ 1 billion in critical financing less than five months later, and the rest is history. That will forever be the turning point for the company.
So by June 2020, I had completely changed from skeptic to enthusiast, suggesting that a double-digit stock price by the end of the year was totally realistic. It ended in 2020, just under $ 50.
It’s amazing what a billion dollars will do for your confidence.
A profit of 17% brings Nio to or close to third place
Based on the analyst’s 12-month target price of $ 70, the Nio stock price only needs to climb 17% over the next year to hit the target. As it grows, that seems like a blow.
Nio recently announced further cooperation with the Hefei municipal government, the same people who saved the company from the April 2020 crash. As part of this partnership, the Hefei government plans to reinvest the returns from their equity investment in Nio to increase EV production in the the city.
Hefei aims to make the city a hotspot for everything EV related. As part of this expansion, the city will build Hefei Xinqiao Smart Electric Vehicle Industrial Park. Importantly, Nio intends to use this park as a foundation for building its global growth. Yu said:
“This lays the foundation for capacity expansion to help NIO reach its longer term volume target of + 300,000 or nearly 3x current capacity. No details have been provided on funding sources, but we suspect there will be significant support in the form of bank credit lines or similar arrangements. “
A little bit of success and the lenders fall all over them to get in on the action.
What is the old saying? A banker always gives you an umbrella when the sun is shining and there is not a cloud in the sky.
Regardless, a share price of $ 70 brings Nio’s market capitalization to $ 109 billion, roughly the same value as BYD’s current market cap.
However, I think it’s fair to say that if Nio moves higher in the next 12 months, BYD and Volkswagen, which aren’t too far behind at $ 107 billion, should too.
It has to go to $ 80 or higher to get third place
Based on 1.56 billion shares outstanding, a stock price of $ 80 by then next year puts its market cap at $ 125 billion, giving it a little breathing room against its two counterparts.
Can it get there? I think it could gain 34% in the next 12 months to get to the magic number. Here’s how.
Nio delivered in 2020 43,728 vehiclesBased on the current market capitalization of $ 93.6 billion, that’s $ 2.14 million per vehicle delivered. It was completed in 2019 20,565 vehiclesIt had 831.9 million shares outstanding on December 31, 2019, and a share price of $ 3.72That’s $ 150,482 per vehicle delivered.
I assume that Nio will double its deliveries again in 2021. So based on $ 93.6 billion, that’s $ 1.07 million for each of the 87,456 estimated vehicle deliveries in 2021.
However, Nio would be one fourth vehicle, the EE7 sedan, will be in production by the fourth quarter, which certainly adds to these numbers. There is also a fifth vehicle on the drawing board for 2022.
So, assuming $ 1.07 million per vehicle delivered, it will have to deliver 116,822 vehicles by 2021. While it is possible, I think that’s an incentive. Assuming a vehicle delivery number approximately half way between 87,456 and 113,636 and $ 1.65 million per vehicle delivered [halfway between $1.1 million and $2.2 million] and we get 100,546 vehicles delivered for $ 1.65 million for a market capitalization of $ 166 billion or $ 106.40 per share [1.56 billion outstanding]
I can’t believe I’m saying this, but I think it has an excellent chance of blowing through Yu’s target towards third place in the global pecking order.
In the long run, Nio is a bargain.
At the date of publication, Will Ashworth held positions (neither directly nor indirectly) in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications in which he has appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger and several others in both the US and Canada. He especially enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of writing, Will Ashworth did not hold a position in any of the above securities.
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