Nio (NIO +9.51%), a major producer of electric vehicles (EVs) in China, initially appears to be deeply undervalued. From 2020 to 2025, its annual deliveries soared from 43,728 to 326,028 vehicles, and its revenue rose at a 40% CAGR.
From 2025 to 2028, analysts expect Nio's revenue to grow at a 26% CAGR. They also expect it to turn profitable in 2027 and nearly quadruple its net profit in 2028. Yet Nio's stock still trades at less than one times this year's sales. By comparison, Tesla (TSLA +1.86%) trades at 16 times this year's sales.
Image source: Nio.
Therefore, the bulls believe the right catalysts could drive the market to revalue Nio as a growth stock again. Could its recent launch of a cheaper SUV and the increased production of its own first-party chips ignite those catalysts and make its stock worth buying this year?
How is Nio differentiating itself from its competitors?
Nio already differentiates itself from other EV makers with its removable batteries, which can be quickly swapped at its battery-swapping stations as a faster alternative to conventional charging. It also produces its own Shenji chips, which are more powerful than Nvidia's (NVDA 1.39%) Orin-X chips, to power its autonomous driving features.
NYSE: NIO
Key Data Points
Nio recently spun off its chipmaking business as GeniTech, freeing it to pursue external funding and expand beyond the automotive market. Nio still holds a 62.7% stake in the new company, but the spin-off will insulate its balance sheet from GeniTech's losses. That's one of the major reasons Nio's profitability could improve over the next two years.
Nio's namesake brand has established a firm foothold in China's premium EV market, but it still faces competition from cheaper brands. That's why it launched ONVO, a new sub-brand of cheaper SUVs, two years ago. Its brisk sales of ONVO's SUVs, along with the launch of its new Firefly compact cars, drove much of Nio's recent growth.
Do those catalysts make Nio a worthwhile investment?
Nio's stock is cheap because it hasn't proven it can generate stable profits. The competitive headwinds and trade tensions between the U.S. and China are also compressing its valuations. The bears will also point out that the Chinese government, through a consortium of state-run investor groups, bailed out Nio in 2020 when it nearly went bankrupt.
However, I personally think the market is overlooking Nio's growth potential. Its deliveries are still climbing, its vehicle margins are expanding, and it's diversifying its portfolio with more competitive vehicles as it spins off its capital-intensive chipmaking business. While I don't think Nio will fetch a comparable valuation as Tesla anytime soon, I believe it can easily double or triple over the next few years as it proves the bears wrong.
