NIO Stock Forecast for 2025: Can Growth Stay Red Hot?
Chinese electric car manufacturer NIO, Inc. (NYSE: NIO) may be stepping on the accelerator as it begins selling enough cars to reach profitable economies of scale in production.
However, with investors still signaling uncertainty about where NIO is headed after its most recent fourth quarter (Q4) and full-year 2020 earnings report, is its stock more likely to be a winner by 2025, or just another secondary company left in the rear-view mirror by more successful EV makers? Let’s dig a little deeper to find out.
What NIO’s Current Share Price Tells Us
After climbing above $62 per share on Jan. 11 and remaining close to that value through early February, NIO’s stock has taken a nosedive since it released Q4 and full-year 2020 earnings data on March 1. The stock dropped sharply as traders responded to mixed results, including a miss on GAAP earnings per share (EPS). The price stabilized in the low $40 range through mid-March, but broke out downward on March 24, plunging more than 8% into the upper $30 range.
As of the end of March, NIO’s shares continue trading hands in the upper $30s. For now, the stock appears extremely sensitive to the market’s attitude toward the electric vehicle (EV) sector in general, creating unpredictable volatility for the Chinese automaker.
With that said, investor opinion about NIO appears to be mainly pessimistic. The stock is down approximately 38% from its peak despite several pieces of good news in its earnings report. Just look at all the positives, a:
- 111% year over year rise in vehicle deliveries
- 133.2% jump in revenue for Q4…
- Delivering a 2% positive surprise above expectations
- Switch from 6% negative vehicle margin to 17.2% positive indicating NIO has reached profitable economies of scale in production
- And upbeat Q1 2021 guidance
All failed to significantly change investors’ bearish outlook on NIO and apparently the sector in general.
Even a bullish price target upgrade to $60 per share by Mizuho Bank only moved the needle slightly in NIO’s favor for a few days. The carmaker’s current share price tells us traders are extremely cautious about electric cars and NIO.
The stock appears unlikely to reach, let alone surpass, its $62 high water mark anytime soon, but seems to have little support in the other direction, with further drops possible and perhaps likely. We’ll continue to monitor the stock and look out for NIO’s earnings next quarter.
Wall Street Forecasts NIO’s 2025
Focusing in on Wall Street forecasts for NIO’s performance over the next five years, analysts are expecting growth to be front-loaded, with a big jump in the near future tailing off into substantial but much lower gains. The analysts also believe NIO will continue generating net losses until 2023.
Looking at revenue, Wall Street clearly expects explosive growth in the near-term with steady slowing thereafter, with a smaller upward jump possible in 2025:
|Year||Revenue||Year Over Year Change|
Shrinking net losses are expected to continue in 2021 and 2022, with the company finally climbing above break-even and delivering net income and positive earnings per share (EPS) in 2023. Analyst consensus pegs GAAP net income at $736 million and adjusted net income at $1.6 billion by 2025, two years after NIO’s earnings are expected to go positive.
Some other highlights of Wall Street’s predictions include:
- Free cash flow going positive next year, in 2022, and reaching $1.1 billion by 2025
- Gross margin gradually increasing from 17.2% to 23.9% in 2025
- Net debt remaining negative until 2024
For comparison, Tesla (Nasdaq: TSLA) generated $31.5 billion in revenue during 2020, meaning Wall Street expects NIO to achieve 57.8% of its big American competitor’s current top line by 2025. Tesla’s 2020 net income of $690 million is fairly close to NIO’s predicted GAAP net income of $720 million in 2025. Overall, Wall Street appears to estimate NIO will be roughly 60% the size of today’s Tesla half a decade into the future, but to operate efficiently enough to generate almost the same amount on its bottom line.
How Much Will NIO Be Worth?
In spite of the recent doubts expressed by the stock market, NIO’s CEO William Li remains confident. While he stated in an interview vehicle deliveries will need to double before NIO achieves a positive net income rather than continuing to generate net losses, he also asserts this is an achievable goal, with sales planned not only in China but also in Europe and the USA.
In the Chinese market, NIO does indeed appear to have the necessary room and catalysts for expansion. The Chinese government is pushing hard for more EVs on its nation’s roads, and electric cars appear to be gaining rapidly in popularity. Currently, electric vehicles account for approximately 5% of Chinese new car sales.
However, this figure is expected to jump to 20% by 2025 because of current trends and initiatives toward lightning-fast expansion of EV ownership. NIO has a large addressable market that is growing at an electrifying pace and is expected to continue this growth through the next half-decade at a minimum.
The mere existence of a market doesn’t guarantee sales, but NIO appears to have several advantages here, too. When it comes to foreign competitors – and particularly American electric car manufacturer Tesla – NIO and other Chinese EV companies have an edge because of escalating tensions between China and the USA.
Though Tesla is producing its Model Y in China and racked up $6.66 billion in sales there during 2020, making it a formidable competitor to Chinese companies on the surface, Beijing has ordered government workers and military personnel to stop using foreign EVs over national security concerns, such as foreign geolocation tracking of those personnel.
Even though Beijing’s suspicion of Washington and resulting avoidance of Tesla will likely prove a windfall for Chinese electric car makers, several companies are competing in the space. NIO has at least one major advantage here, too, however, offering a battery swap service unique to its vehicles. This technology enables drivers to have a fully charged battery swapped into their car at a station, eliminating the need for lengthy “downtime” while a built-in EV battery recharges.
NIO is also looking for expansion into Europe and the USA in the next 12 to 24 months, according to its executives. While sales in Europe seem quite likely to add another revenue stream for the company, significant U.S. deliveries look like a pipe dream at this point, given Tesla’s immense popularity and market dominance among American electric car drivers, a crowded field of EV startups, upcoming EV offerings from the huge established automakers, and the political tensions between the two countries.
If NIO meets its goals of greatly expanding its production and deliveries, achieving positive net income, and leveraging its product differentiation (battery swap technology) into more success, the expected 300% growth in new EV purchases could give it the revenue and earnings needed to drive its share price significantly higher.
Complicating the matter is the fact NIO has issued large numbers of new shares. These are currently trading at a multiple of more than 25x trailing twelve months (TTM) sales per share, or a P/S ratio of 25. Predicting shares outstanding and P/S ratio for 2025 is impossible, but a simple scenario –
- Doubling the number of current outstanding shares to roughly 3.2 billion
- Setting half the current P/S ratio at 12.5x
- Assuming Wall street sales forecasts of $18.5 billion prove accurate
– yields a theoretical price of approximately $74 per share. If P/S ratio remains at 25x instead, which is inflated by overall auto industry standards but not necessarily in terms of the EV sector where much higher ratios currently prevail, NIO could see stock value of $148 per share. Also, additional share issuance could fall as the company has less capital drain with improving margins.
While this is simply guesswork, it demonstrates a bull case could see share prices in 2025 far above NIO’s current historic high of $62, based on current P/S ratios, metrics, and Wall Street predictions.
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Why NIO Could Fall Short of 2025 Forecasts
NIO is operating in a volatile and uncertain sector, and its continued rise to full potential is in no way guaranteed. A number of factors could easily cause it to fall short of the best-case scenario:
- Loss of product differentiation as competitors develop charging alternatives, different battery swap tech, etc., reducing its battery swap advantage
- Improved relations between China and the USA leading to a new surge in Tesla use, pitting NIO against an established, formidable competitor for market share
- Chinese economic contraction causing new EV sales to fall short, and demand for high-end EVs such as those made by NIO to drop off more sharply than sales in the sector as a whole
- Failure to develop a significant secondary market in Europe
- Unexpected hurdles in production, development of a battery swap network, or securing further government support for R&D
Any of these events could significantly affect NIO and potentially cause it to remain below its historic $62 price ceiling well into the future, perhaps as far out as 2025 or beyond.
Is NIO a Buy?
While NIO is operating in a crowded sector, has significant global competitors such as Tesla, is subject to the high stock market volatility and rapid investor “mood swings” of the EV sector, and is still operating at a loss, its five-year prospects still look potentially bullish overall.
It is operating with a home-field advantage in a country expressing political hostility toward foreign EV makers and preference toward domestic electric automakers, it has a currently unique and highly convenient product feature with its fast battery swaps instead of prolonged, inconvenient charging, and Wall Street projections are strongly favorable for a much higher stock price by 2025 even with assumptions its stock is diluted with a doubling of outstanding shares.
Unlike many recent EV startups, NIO is actually producing and delivering working vehicles in the tens of thousands every quarter, and is achieving economies of scale making individual unit sales net profitable. At this point, NIO looks like it could be a good longer-term buy, with its current share price troubles representing a buy-in opportunity for those who don’t mind a bit of uncertainty and who are willing to wait patiently for future developments.