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While many retail investors and a section of sell-side analysts have been bullish on Chinese electric vehicle (EV) company NIO (NIO), it has failed to live up to expectations. After closing in the red in 2021 and 2022, it has lost almost a fifth of its market cap in 2023 as well, and looks on track for its third consecutive year of losses.
The “Tesla of China,” as NIO was once hailed, is now struggling to justify that title, even as China-based BYD (BYDDY) looks set to snatch the crown of largest EV seller from Tesla (TSLA) – after having already surpassed the Elon Musk-run company in terms of total deliveries, after accounting for plug-in hybrid vehicles (PHEVs).
Some NIO bulls expect the stock to rise to $100 over the long term, while a tiny fraction is even speculating the stock can reach $1,000. Here’s the 2030 forecast for NIO, and why the probability of it reaching $100 by 2030 looks remote.
NIO’s Business Model
EV players tend to have one of two business models. The first is self-manufacturing, which players like Tesla, Rivian (RIVN), and Lucid Motors (LCID) have adopted. While the strategy is capital-intensive, it also underscores the importance that these companies have put on manufacturing - which many would argue has historically been the core business of automotive companies.
The second strategy is contract manufacturing, which NIO and some others, like Fisker (FSR), have adopted. Proponents of this business model believe that just like smartphone companies, automotive companies can also outsource manufacturing to third parties while focusing on design and software. Incidentally, Foxconn - which produces most of Apple's (AAPL) products - has entered into automotive contract manufacturing, and has formed a joint venture with Saudi Arabia to manufacture EVs in the oil-rich kingdom.
Both strategies have their own pros and cons, and while self-manufacturing gives a lot more control over the production process and supply chain, third-party manufacturing brings manufacturing prowess to the table – something startup EV companies lack.
Currently, China’s state-owned JAC Motors produces cars for NIO. However, there are reports that NIO is considering buying the facility from the company to gain independence in manufacturing. Morgan Stanley believes that buying the plants from JAC would make “strategic sense” for NIO.
NIO has also built a network of battery-swapping stations in China. It also provides the battery on subscription, which lets it offer lower car prices to buyers while generating recurring revenues through subscription fees. In order to reduce its cash burn rate, NIO has also stopped providing free battery swaps for new buyers.
NIO Is Not Going Out of Business
In Q1 2020, there were fears that NIO might not survive and go bankrupt. However, it managed to raise cash from strategic investors, and the Chinese government also pooled money to bail out the struggling company.
NIO has since raised capital multiple times through different instruments – including a $740 million strategic investment by CYVN Holdings, which is majority-owned by the Abu Dhabi government. It held $4.3 billion as cash and cash equivalents on its balance sheet at the end of June, and has shown the ability to raise cash from multiple investors. The importance of a strong balance sheet can't be overstated amid the current EV industry slump, as it provides financial viability amid the macro turmoil.
NIO’s President and co-founder, Lihong Qin, tried to allay fears about its survival and said at this year’s Guangzhou Auto Show that "Nio will not go out of business, and there is absolutely no possibility of it going out of business.” That said, the company has gone slow on expansion, and has fired 10% of its workforce as its growth hasn’t been as high as expected.
NIO Stock 2030 Forecast
While many of the current startup EV companies might not be around by 2030, we can be reasonably sure that NIO should be able to survive the current slump. However, its long-term forecast will depend on the success of its upcoming models, sustainable profitability and free cash flows, as well as the planned international expansion - which is now looking a lot more complicated than a few quarters back.
For instance, while NIO plans to enter the U.S. market by 2025, the company might find itself at a disadvantage in the world’s most lucrative automotive market due to the tax credit rules, which won’t apply to its cars imported from China. With EV buyers increasingly price-conscious, the absence of a $7,500 EV tax credit could hurt NIO’s prospects in the U.S. market.
Also, while the company has started shipping cars to Europe, in October the European Commission opened a formal anti-subsidy investigation into imports of battery electric vehicles from China. Almost every country is trying to create a domestic ecosystem of electric car manufacturing – which is at odds with NIO’s current business model of producing the cars in China and then shipping them globally.
Will NIO Stock Reach $100 by 2030?
At present, NIO stock trades under $8, with a market cap of just around $12.8 billion. At its peak in Feb. 2021, NIO’s market cap was a tad short of $100 billion - but those were different times, and for loss-making EV names, almost a different epoch altogether.
To reach $100 by 2030, NIO stock would need to rise at a CAGR of more than 40% and jump 13.4x from these levels, which would mean a market cap of $180 billion. Realistically speaking, I don’t expect NIO stock to reach $100 by 2030 even as at the current depressed valuations, it looks like an EV stock worth considering.
On the date of publication, Mohit Oberoi had a position in: NIO , RIVN , AAPL . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
