While I’m preparing my last article on Nio (NYSE:NIO), the Chinese manufacturer of electric vehicles (EVs) with heavy loading, Nio’s shares are traded for US $ 60. This values the company at US $ 93.6 billion, good for the fifth place among the largest automakers in the world by market capitalization.
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On February 1, Deutsche Bank analyst Edison Yu reiterated his “buy” ratgeo target price of $ 70. Upon reaching Yu’s target, Nio could become the third largest automaker in the world.
Here’s why Volkswagen (OTCMKTS:VWAGY) and BYD (OTCMKTS:BYDDF) must be looking in your rear view mirrors.
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A lot has changed in Nio’s shares in the last year
About 15 months ago, I didn’t have much to say about the new EV maker:
“Like Taulli [InvestorPlace contributor Tom Taulli] points out that if the company is burning money at that rate, any future capital or debt financing arrangements will be highly one-sided for the entity providing the bailout and terrible for current shareholders.
“Altman Z-Score by Nio, an indicator of future bankruptcy, is -4.45 at the present time. This is nowhere near where it should be to give investors a warm, confused feeling.
“I would like to have better news for Nio’s shareholders. But you can’t put lipstick on a pig. “
Of course, in retrospect, we know that Nio stole $ 1 billion in critical financing in less than five months later, and the rest is history. Forever, this will be known as the company’s turning point.
So in June 2020, I went from being skeptical to enthusiastic, suggesting that a double-digit share price at the end of the year was entirely realistic. It ended 2020, almost $ 50.
It’s amazing what a billion dollars will do for your trust.
A 17% gain puts Nio at or near the third point
Based on the analyst’s target price of $ 70 for 12 months, Nio’s stock price only needs to rise 17% next year to reach the target. As it grows, it looks like a strong dunk.
Nio recently announced more collaboration with the Hefei municipal government, the same people who rescued the company from the collapse in April 2020. As part of this collaboration, the Hefei government plans to reinvest the returns on its capital investment in Nio to further support EV production in the City.
Hefei is focusing on making the city an important point for all EV things. As part of this expansion, the city will build the Hefei Xinqiao Intelligent Electric Vehicle Industrial Park. It is important to note that Nio plans to use this park as the base to build his global growth. Yu said:
“This lays the foundation for expanding capacity to help NIO achieve its longer-term volume target of + 300k or almost 3x current capacity. No details were provided on the sources of financing, but we suspect that there will be strong support in the form of bank credit lines or similar arrangements. “
A little bit of success and creditors are running over to take action.
What is the old saying? A banker will always give you an umbrella when the sun is shining and there is no cloud in the sky.
Either way, the $ 70 share price puts Nio’s market value at $ 109 billion, almost the same as BYD’s current market value.
However, I think it is fair to say that if Nio goes up in the next 12 months, BYD and Volkswagen, not far behind, with $ 107 billion, should also.
It takes $ 80 or more to get third place
Based on 1.56 billion shares in circulation, a price of $ 80 per share next year puts its market value at $ 125 billion, giving it a little breathing space compared to its peers.
Can he get there? I think you can earn 34% in the next 12 months to reach the magic number. See how.
In 2020, Nio delivered 43,728 vehicles. Based on its current market value of $ 93.6 billion, it is $ 2.14 million per vehicle delivered. In 2019, it delivered 20,565 vehicles. He had 831.9 million shares outstanding on December 31, 2019 and one stock price of $ 3.72. That is $ 150,482 per vehicle delivered.
I will assume that Nio will double its deliveries once again in 2021. So, based on $ 93.6 billion, that’s $ 1.07 million for each of the estimated 87,456 vehicle deliveries in 2021.
However, Nio could have a fourth vehicle, the EE7 sedan, in production in the fourth quarter, certainly contributing to these numbers. In addition, there is a fifth vehicle on the drawing board for 2022.
Therefore, based on US $ 1.07 million per vehicle delivered, it will have to deliver 116,822 vehicles in 2021. Although it is possible, I think this is forced. Assuming a vehicle delivery number approximately in half between 87,456 and 113,636 and $ 1.65 million per vehicle delivered [halfway between $1.1 million and $2.2 million] and we received 100,546 vehicles delivered at $ 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 passing Yu’s target on his way to third place in the global hierarchy.
Long term, Nio is a purchase.
As of the date of publication, Will Ashworth had (directly or indirectly) no positions in the securities mentioned in this article.
Will Ashworth has been writing about full-time investments since 2008. The publications in which he appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger and several others in the United States and Canada. He particularly enjoys creating portfolios of models that stand the test of time. He lives in Halifax, Nova Scotia. At the time of writing, Will Ashworth did not occupy a position in any of the titles mentioned above.
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