Nio (NIO 5.26%), a stock that rode the electric vehicle (EV) hype in 2021, turned out to be among the biggest losers in 2022 -- it plunged 69% last year. Yet, unlike most EV manufacturers, Nio continued to deliver throughout the year, but its shares were caught in the stock market carnage as investors dumped growth stocks amid macroeconomic fears.
At current prices, Nio could be a rare opportunity to buy a growth stock in a fast-growing industry. Here are the three biggest reasons why Nio stock is a solid buy right now for 2023.
1. One big threat to Nio stock is behind it
Chinese stocks came under intense selling pressure last year on fears of getting delisted from the U.S. stock exchanges if the foreign companies didn't provide the U.S. regulators full access to audit reports. The U.S. Securities and Exchange Commission even publicly named more than 100 Chinese companies that faced the risk, including Nio. The EV maker quickly listed its shares in Hong Kong and Singapore as a hedge against potential delisting from the U.S.
The good news is that there's finally been a breakthrough in the U.S.-China standoff, with U.S. regulators recently stating that they were able to "perform full and thorough inspections and investigations" on Chinese companies for the "first time in history." In other words, the risk of delisting is averted, and that's big news for Chinese stocks like Nio.
That brings us to the other big reason why Nio stock has been under so much pressure in recent months: the raging COVID-19 pandemic in China. But as we'll see, Nio should be able to navigate this storm too.
2. Nio has a busy year ahead
COVID-19 lockdowns forced key manufacturing regions in China to shut down multiple times in 2022. With Nio also temporarily suspending operations at least twice in the year, investors were afraid the EV maker would not grow.
Nio's monthly deliveries did fluctuate in 2022, and the company even slashed its fourth-quarter deliveries outlook sharply in December after China's easing of its zero-COVID policy triggered a fresh wave of coronavirus cases.
Yet Nio eventually didn't just beat its revised Q4 outlook but delivered a record number of vehicles in the quarter, up 51% year over year. Nio's deliveries in 2022 rose 34% over 2021, which was again impressive, given the persistent production and supply chain constraints.
Equally important, Nio stuck with its growth plans in 2022 and started deliveries of three EVs on its second-generation technology platform NT2.0 -- sedans ET7 and ET5, and SUV ES7.
Image source: Nio.
ET5, in particular, is proving to be a game changer thanks to its competitive pricing. The premium midsize sedan's preorders beat Nio's own expectations, and the company delivered its first ET5 on Sept. 30, 2022. Nio then rapidly ramped up production and sold 7,594 ET5s in December versus 221 units in September.
In December, ET5 even landed a spot on the 10 best-selling premium sedans list in China. In fact, only two all-electric cars made it to the list, and both belonged to Nio: ET5 and ET7.
If Nio could grow in a challenging year like 2022, it should be able to do so in 2023 as well, even if COVID continues to disrupt operations in China. The company's plans for 2023 for now do look impressive.
Nio expects to have five new models by mid-2023, including a Tesla Model Y rival, as Nio tries to play catch-up with the EV leader to capture a bigger share of China's EV market. Meanwhile, Nio is expanding aggressively in Europe, where it's also extending its Battery-as-a-Service (BaaS) program. BaaS is a solid competitive advantage for Nio as customers can buy Nio EVs cheaper without battery packs and subscribe to plans to swap and upgrade batteries at Nio's swapping stations. Nio is also already building a mass-market EV that could be ready for deliveries by late 2024 and could sell 50,000 units a month.
3. Nio stock looks cheap now
For all the growth and opportunities, Nio stock looks cheap right now, and that's perhaps the biggest reason why you'd want to buy the EV stock now.
Nio's deliveries are hitting record highs, and the company's full-year 2022 revenue could grow by at least 25%. Yet Nio stock is trading at a valuation it last saw in 2020, or a price-to-sales ratio of about 2.9.
NIO PS Ratio data by YCharts
This looks like a solid entry point for anyone waiting to buy Nio stock and bet on China's explosive EV market. Indeed, China is the world's largest EV market -- sales there almost doubled in 2022, and it sold nearly 6.9 million EVs, almost five times than sold in the U.S.
Here's the most fascinating number: EVs accounted for 25% of China's total new car sales in 2022, a goal Chinese President Xi Jinping originally expected to achieve by 2025. Nio is growing steadily and wants to make the most of the EV boom in China, and that makes it a compelling EV stock to buy now for 2023 and beyond.
