Why Nio Stock Could Be an Incredible Bargain

Industry analysts are projecting the global electric vehicle (EV) market to grow from its current $671 billion valuation to $1.89 trillion by 2032. Asia Pacific currently leads this expansion with a 51.2% market share, driven by China's dominance in both production and adoption. Even the U.S. market, according to these same forecasts, could reach $233 billion by 2032.

Several key factors are driving this projected growth. Rising fuel costs are pushing consumers toward electric alternatives, while mounting environmental concerns are influencing both government policy and buying decisions. Regulators worldwide are accelerating the transition through a combination of strict emission rules and targeted EV incentives.

Image source: Getty Images.

This evolving market landscape is creating opportunities for well-positioned EV manufacturers. One company stands out for its innovative approach to premium vehicles and compelling valuation.

Pioneering premium electric mobility

Nio (NYSE: NIO) is carving out its lane in China's premium EV segment, with vehicles priced between 298,000 yuan ($41,797) and 598,000 yuan ($83,874). The company's battery-as-a-service model is revolutionizing ownership economics -- separating battery costs from vehicle prices to reduce upfront expenses by up to 30%, while generating recurring revenue.

Vehicle margins are also showing strong momentum, reaching 12.2% in Q2 2024, up 6% year over year despite intense price competition. This margin expansion stems from increased delivery volumes and declining battery costs, with management targeting mid-teens margins by December 2024.

A strategic pivot toward mass-market dominance

Nio's entry into the mass market arrived with September's launch of the Onvo L60, a midsize SUV priced at $21,000 for the base model designed to challenge Tesla's Model Y. Initial L60 deliveries are ramping up, with Nio targeting monthly production of 10,000 vehicles by December 2024.

This calculated expansion beyond premium vehicles is signaling bigger ambitions. With 4,000 battery swap stations planned globally and L60 monthly deliveries targeting 20,000 units by 2025, Nio is positioning itself as a major player in China's mainstream EV market.

Infrastructure advantages driving growth

Nio's battery-swap technology is addressing the range anxiety that typically concerns EV buyers. The company is rolling out 4,000 swap stations worldwide by 2025, with 1,000 locations planned outside China.

Since Q3 2022, manufacturing capacity at JAC's Hefei plant has more than doubled to 240,000 units, complemented by a new 120,000-unit facility at NeoPark. This expanded production footprint provides a significant runway for Nio's ambitious growth targets through 2025.

Nio's valuation metrics are screaming bargain

Wall Street analysts are seeing significant upside potential, with their consensus 12-month price target of $7.46 suggesting approximately 30% gains from current levels. The stock's valuation metrics are equally compelling, as Nio shares are trading at just 1.24 times sales, a substantial discount to the peer-group average of 3.24.

This valuation disconnect appears out of step with Nio's expanding margins and growth trajectory. Nio is improving production efficiency and analysts are projecting profitability by 2027, so the current valuation multiple seems to underestimate the company's strengthening market position.

A compelling case for long-term investors

While Nio's stock has tumbled 36% this year, the company's fundamentals paint a different picture. According to Morningstar analyst Vincent Sun, vehicle deliveries are projected to surge from 160,038 units in 2023 to 256,000 by 2025, targeting 2% of China's passenger new energy vehicle (NEV) market, which includes electric vehicles, hybrids, and fuel cell rides.

NIO data by YCharts.

The expansion into mass-market vehicles, increased production capacity, and innovative battery-swap systems are positioning Nio to capture a significant share of the projected $1.89 trillion global EV wave. For investors willing to weather near-term volatility, Nio's stock looks like a straight-up steal at these prices.

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George Budwell has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.