Nio (NIO 2.87%) is one of China's fastest-growing electric vehicle makers. Between 2018 and 2022, its annual deliveries surged from 11,348 to 122,486 vehicles, representing a jaw-dropping compound annual growth rate (CAGR) of 81%. Its annual revenue also grew at a CAGR of 74% during those four years.
Those growth rates leave smaller American EV makers like Lucid and Rivian -- which only delivered 4,369 and 20,332 vehicles, respectively, in 2022 -- in the dust. Yet Nio's stock still tumbled along with Lucid, Rivian, and other EV makers as rising interest rates cast dark clouds over the entire sector.
Nio's stock trades nearly 90% below its all-time high and looks dirt cheap at 1 time this year's sales. I recently argued that this low valuation made it a good play on China's post-pandemic recovery as well as the expansion of the EV market. But today, I'll cover three other aspects of Nio's business that smart investors should be familiar with as well.
Image source: Nio.
1. Nio operates a battery-swapping network
It can take half an hour to fully charge an EV at a public charging station, compared to about two minutes to fill up a gas-powered vehicle. That huge gap prevents many drivers from switching to EVs.
Nio addresses that challenge with its Power Swap battery-swapping stations, which allow its drivers to quickly swap out their depleted batteries for fully charged ones. They can pay for those swaps individually or through recurring subscriptions. That makes Nio similar to the Taiwanese electric scooter maker Gogoro, which provides a similar battery-swapping network for its riders, and differentiates it from other Chinese EV makers that still rely on charging stations.
Nio operated 1,331 Power Swap stations at the end of 2022, which marked a 71% jump from 2021, and it had completed more than 18 million battery swaps (which take under three minutes each) on a cumulative basis. About half of the power charged by its drivers in 2022 came from its Power Swap stations instead of traditional charging stations.
Nio's expansion of that network in 2023 will likely squeeze its near-term margins. But over the long term, this unique time-saving approach could sharpen its edge against its rivals in the fragmented Chinese EV market.
2. Nio once produced a high-end supercar
Nio turned a lot of heads with the launch of its high-end EP9 roadster back in 2016. The supercar had a top speed of 195 mph and an impressive range of 265 miles. It also broke acceleration records on every track it was tested on.
The EP9 didn't come close to matching Tesla's top-tier Roadster, which has a top speed of about 250 mph with a range of 620 miles, but it indicated that Chinese EV makers were just as capable of producing electric supercars as their American counterparts.
Yet Nio never mass-produced the EP9. It manufactured 16 of the supercars, and none of them have been registered for legal road use yet. With a staggering price tag of $1.2 million, the EP9 was really just a proof-of-concept vehicle.
That's why it wasn't surprising when Nio abandoned the EP9 to focus on the development of its mainstream vehicles. Today, Nio mass-produces five SUVs (the EC6, ES6, EC7, ES7, and ES8) and two sedans (the ET5 and ET7). That reflects its rapid expansion from a single vehicle -- the ES8 -- back in 2018.
3. Nio has its sights set beyond China
Nio still generates nearly all of its revenue in China, but it opened its first overseas store and battery swapping station in Norway in early 2021, followed by two auto showrooms in Germany in 2022. These baby steps could set it up for a broader expansion across Europe -- one of the fastest-growing EV markets alongside China -- over the next few years.
If Nio can replicate its success in China in Europe and expand its Power Swap network across the continent, it could evolve into a formidable competitor for Tesla as well as traditional automakers that are expanding into the EV market.
Is Nio the right EV stock to buy right now?
Nio is still a speculative stock, and it will remain under pressure as long as the macro headwinds persist and delisting threats loom over U.S.-listed Chinese stocks. It's also deeply unprofitable and won't come close to breaking even anytime soon.
But I believe Nio is still a better bet than Lucid or Rivian, and it could still have plenty of room to run as it pumps out more vehicles and expands its Power Swap network. Therefore, investors who can tune out all the near-term noise might be well rewarded for accumulating shares of Nio while the bulls are still broadly shunning the entire EV sector.
