Where will Nio be in 5 years?

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There are several new entrants to the field of electric vehicle manufacturing, and figuring out which of them will be successful in the long run can be quite difficult. EV startups that plan to start production in a year or two could be particularly risky investments, as there will be a number of EV suppliers by the time these companies enter the market. In comparison, early arrivals may have more time to settle.

One of these companies is Nio (NYSE: NIO). Let’s take a closer look at how Nio might fare in the long run.

Impressive sales growth

Founded in 2014, Nio sold 24,439 vehicles in the third quarter. This represents a growth of 100.2% from the company’s quarterly deliveries a year ago. Over the past two years, Nio has grown its quarterly revenue at an average rate of nearly 137%.

In September, Nio delivered 10,628 vehicles, up 125.7% year-over-year, despite persistent supply chain constraints. Its annual turnover and 2020 deliveries have more than doubled compared to 2019.

NIO revenue (quarterly) by YCharts

Nio does not provide an expected long-term growth target, but Nio should be in a good position in five years, even if the growth rate declines a bit from historical levels. Wall Street analysts expect the company’s sales to reach $ 13.6 billion in 2024, from $ 2.3 billion in 2020.

Strong national and global demand for electric vehicles

Electric vehicles are expected to experience strong growth in demand in the coming years. Supportive government policies, lower production costs for electric vehicles, improved performance and the development of charging infrastructure are some of the factors supporting the growth of electric vehicles. And while electric vehicles are experiencing higher global demand, China is leading the way in terms of growth.

According to Canalys, global sales of electric vehicles grew 160% in the first half of 2021. Of the 2.6 million electric vehicles sold worldwide in the first half of the year, 1.1 million were sold in China. Sales of new electric vehicles in China in the first half of 2021 were almost equal to sales of electric vehicles in the country for the whole of 2020.

Young man charging an electric car at the public charging station.

Image source: Getty Images.

Electric vehicle sales in China in the first half of 2021 accounted for 42% of global electric vehicle sales during this period. Nio could therefore benefit from strong demand for electric vehicles in its domestic market.

After China, the fastest growing electric vehicle market is Europe. Around 1 million electric vehicles were sold in Europe in the first half of this year. Nio is also eyeing this market. Norway leads the adoption of electric vehicles and around 80% of new car sales in the country are electric vehicles. Nio completed delivery of its first batch to Norway in September. Over time, the company also plans to enter other European markets.

Nio faces tough competition

While Nio’s revenue growth has been impressive so far, the company faces stiff competition from other players. In China, a joint venture between SAIC Motor, General Motors, and Liuzhou Wuling Motors controls the largest share of the electric vehicle market (including hybrids). Another key competitor is a large traditional automaker BYD, which is growing in the electric vehicle segment.

Small players, including XPeng (NYSE: XPEV) and Li Auto (NASDAQ: LI), also offer serious competition. XPeng has seen much stronger revenue growth than Nio over the past four quarters, but from a much weaker base.

NIO Revenue Graph (Quarterly)

NIO revenue (quarterly) by YCharts

Finally, established electric vehicle manufacturer You’re here is a leading player in the Chinese electric vehicle market and offers significant competition to Nio.

In short, despite the expected strong growth in demand for electric vehicles in the coming years, the road to growth for Nio will not be easy.

A promising stock

Despite the competition, Nio has done well so far. As more and more car manufacturers launch their electric vehicle models, the competition in the segment will intensify further. But Nio is taking several steps to continue its long-term growth. Its Battery-as-a-Service model, for example, allows customers to buy a car without a battery and subscribe to battery packs later.

Nio also plans to expand its target market by developing low-cost models for price-sensitive customers. Strong demand, solid growth strategies and the company’s plans to expand into the European market are expected to help drive Nio’s growth over the next five years and beyond.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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