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Is It Too Late to Buy Nio Stock?

By Howard Smith – Sep 28, 2021 at 9:02AM

Key Points

  • Investors have to balance risk from political uncertainty with a growing and expanding business.
  • Nio plans to launch its vehicles and an ecosystem for its user community in Europe.
  • The company continues to innovate, including a new standard-range hybrid-cell battery.

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Turbulence in Chinese markets has hit electric vehicle producers, potentially providing an opportunity for investors.

Sometimes good investment opportunities come for reasons unrelated to the company itself, or even its business sector. China's regulators have come down hard on certain sectors including big tech and for-profit education companies. And recently the fear of loan default by a large Chinese real estate company has shaken markets globally. 

In China itself, the turbulence has also hit growing companies that manufacture electric vehicles. Widely followed Chinese EV maker Nio (NIO -4.99%) relies on a manufacturing partnership with a state-owned company. With the government cracking down on business, investors might be wondering if it's too late to profit from this growing sector. But there are several reasons Nio may just be getting started, providing an opportunity for risk-tolerant investors. 

Nio ET7 luxury electric sedan against city skyline.

The Nio ET7 luxury sedan. Image source: Nio.

Have all the gains been made? 

Nio stock peaked in early 2021 with its American depositary shares priced at more than $60, representing a market cap approaching $100 billion. That constituted gains of about 1,500% from January 2020, when the company began to solidify a troubled balance sheet. But the shares have been cut in half since the peak, and with the uncertainty related to U.S.-listed Chinese stocks, some investors might think gains from the stock are in the past. 

While the company still isn't profitable, if investors can absorb more macro risks associated with regulators and potential government intervention, there are some bright signs that the business itself is getting ready to take off. 

In May 2021, Nio renewed a manufacturing agreement with its state-owned partner through 2024, with plans to double annual capacity to 240,000 vehicles. The company believes demand supports that growth. Nio also has three new products it plans to launch in 2022, including the ET7 luxury electric sedan. 

China's market and beyond

The ET7 will be the first sedan offered by Nio, and it is getting closer to mass production. The company recently announced it has completed an extreme-heat test on the sedan, which "verified the stability of the ET7's thermal management system, performance of the powertrain system, and the battery cooling system under extreme heat conditions."  

Beyond China, Nio plans to launch the ET7 sedan in Norway next year, where it has already sent its first exported shipment of its flagship ES8 SUV from Shanghai. CEO William Li says, "Our target is to have ET7 in Germany by the end of 2022," according to online industry publication InsideEVs. The car was recently shown in Germany along with the Nio EVE, an autonomous-driving concept car that it says was the inspiration for the ET7.

And the automaker isn't just planning to sell vehicles in new markets. The official launch of the ES8 in Norway comes on Sept. 30, with pricing and exact specifications to be announced. Nio Norway general manager Marius Hayler said the company will then open a Nio House on Oct. 1. There are currently 28 Nio Houses across China, which are meant to develop and support the community of its EV users. 

Nio electric vehicle in battery swap station.

A Nio in a battery swap station. Image source: Nio.

Innovating for customers and investors

In addition to the ET7, Nio reportedly plans an ET5 sedan as another new product next year. The vehicle, which will be positioned below the ET7, is expected to be announced at the company's annual Nio Day in 2022, according to Chinese auto industry website autohome

Innovation isn't restricted to new vehicles, either. The company just announced a new 75 kWh standard-range hybrid-cell battery to replace its 70 kWh version. The company says the new battery, which was developed with patented technologies, has an extended range at cold temperatures. Due to technological efficiencies, the company will offer the new battery at the same price as the previous 70 kWh version. It now is available for new orders along with its longer range 100 kWh battery. 

And both come with the option to add a battery-as-a-service subscription, which gives the company another income stream while differentiating itself from competitors. Nio's power solutions service offers chargeable, swappable, and upgradable batteries.

Nio isn't alone in attempting to expand an EV business in the largest global automotive market. And its competitors in China are also growing their businesses outside the country. For investors, risks of owning Nio include competition, political uncertainty, and its status as an as-yet unprofitable company still valued at almost $60 billion. But for aggressive investors with long-term views, who believe in the growth story of the company and the EV sector, it might not be too late to buy Nio. 

Howard Smith owns shares of Nio Inc. The Motley Fool owns shares of and recommends Nio Inc. The Motley Fool has a disclosure policy.

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