Two years ago, the Chinese electric vehicle (EV) manufacturer Nio (NYSE:NIO) announced that it did not have the funds to last another 12 months. Now, NIO stock is a high buying potential electric vehicle trade with huge upside potential until December. In addition, the latest news and upcoming events portend an eventful 2022 for the company.
NIO’s business has grown impressively over the past year, and news from the executive team of the premium electric vehicle maker has never been so optimistic. However, stocks are down over 18% year-to-date (YTD) and have continued to decline as we exit November.
Exciting Shell deal to move NIO’s stock
In a press release published by Shell (NYSE:RDS.A, NYSE:RDS.B) on Thursday, November 25, the company announced that it had partnered with Nio to improve the charging experience for electric vehicle customers around the world.
According to the press release, the two companies will “develop a network of co-branded battery exchange stations. Cooperation in China will start with two pilot sites and aim to reach 100 sites by 2025, as well as additional co-branded battery exchange stations at Shell EV charging centers and Shell Recharge fast chargers at Nio sites. The cooperation will extend to Europe in 2022.
Nio’s revolutionary and patented battery exchange concept is gaining ground among electric vehicle drivers. Instead of waiting hours for a battery to be fully charged (and wasting precious time traveling), NIO customers can simply swap out their depleted battery unit for a fully charged one in minutes.
The battery swap concept makes the switch from internal combustion engines to electric vehicles much easier for those who have been sitting on the fence. It also enabled the company to offer a “battery as a service” (BaaS) program. It is an entirely new value proposition for customers to own only the vehicle and rent the battery to avoid worrying about costly replacements after degradation.
Shell could take the concepts globally, opening up new frontiers of growth for the Nio brand.
Growth in new markets on the horizon
Above all, the latest Shell / Nio partnership could help accelerate the latter’s entry into new European markets. It could also make compelling convenience propositions to North American drivers.
Shell is the world’s largest operator of refueling stations in the world with approximately 46,000 locations in several countries. It intends to operate north of 500,000 electric vehicle charging points around the world by 2025. Nio’s battery swap is an innovative proposition that the global mobility retailer wants to introduce in certain markets.
The electric vehicle maker could have many more recurring revenue points as the Shell partnership grows. Thanks to the agreement, Nio can gain visibility on its brand and potentially attract a wider clientele.
The future looks definitely better for NIO stock.
Investors Should like Nio’s evolving business
Nio started delivering vehicles in 2018. Since then, the business has grown smoothly and rapidly. Recently, the company upgraded the capacity of its flagship production site and made new investments in its co-production plant. With this and the new products from Nio’s second plant, the company could increase its annual capacity to more than 600,000 vehicles by the second half of next year.
The current long wait times for new customers may soon be a thing of the past. Better yet, Nio’s gross margins improve with productivity growth. Gross vehicle margins could drop from 18% in the third quarter of 2021 to 25% in the long run.
Growing competition remains a factor to watch as new entrants to the Chinese electric vehicle market carve out their own niche. But analysts are optimistic about NIO’s financial performance, growth prospects and cash flow generating ability at this time.
If Wall Street’s forecast for Nio’s operations comes true over the next year, the company could significantly increase revenue, reduce operating losses, and generate around half a billion dollars of operating cash flow in 2022.
The result on NIO Stock
Nio is moving closer to generating positive operating cash flow in a sustainable manner as its capacity and revenues grow. Positive cash flow will allow the company to less depend on further injections of capital for growth initiatives. The company may soon be able to finance some projects from internally generated cash flow.
In other words, Nio has the potential to become self-sufficient. Shareholder dilution may be minimal in the near future.
Nio’s shares could remain volatile in the short term, as the stock still faces the risk of delisting from US stock exchanges. Audit questions remain a problem, but a solution is still being sought among the authorities in the respective countries. Any success on this front could significantly reduce the risk to Chinese companies, including NIO stocks.
Investors don’t necessarily expect 1,200% gains in 2022 like in 2020, but an impressive execution from Nio could justify a rise in stock prices next year. Beware of potential fireworks and new products on Nio Day on December 18th.
As of the publication date, Brian Paradza does not have (directly or indirectly) any position in any of the stocks mentioned in this article. The opinions expressed in this article are those of the author, subject to the publication guidelines of InvestorPlace.com.
Brian Paradza is an investment enthusiast who received the CFA charter in 2019. A strong proponent of fundamentally-based long-term investing, Brian learns from gurus like Warren Buffett, but recognizes human behavioral tendencies that lead to “ insanity ”in the short term. You might find him curious as he examines investment opportunities in tech, cannabis, blockchains, and the new asset class of cryptocurrencies.