Valuation Of NIO: EV/Sales of 2.8x In 2025
With extremely conservative assumptions, I tried to assess the number of cars that NIO may sell in 2030. I wanted to show that the current valuation does not really reflect NIO’s value potential. I assumed that consumers will buy 14.72 million electric vehicles by 2030:
Pure electric and plug-in hybrid electric vehicles (China calls them “new energy vehicles” or NEVs) are expected to account for 40 percent of 38 million sales in 2030, or about 15 million units. Imagine: 15 million electric vehicles! America’s entire vehicle market this year – with record low-interest rates and sky-high incentives – will reach just 17 million. Source: Forbes
In 2020, NIO had a market share of close to 4.55% in China. I expect the company to increase production capacity in the next ten years. As a result, I also expect the company to increase its market share. I believe that 10% market share from 2027 to 2030 is very conservative.
NIO sells cars for more than $65k, but has sold other models for less than $52k. As I expect the company to reduce its prices in the near future, I assumed that vehicles will be sold for $51k. With these figures and the number of electric vehicles to be sold in China, I obtain 2030 sales of $153.1 billion. Notice that sales growth is approximately close to 40%-50%.
Putting everything together and using the current enterprise value of $61 billion, the company trades right now at 13x sales. However, the EV/Sales ratio declines drastically as production and sales increase. In 2025, NIO will hit a sales ratio of 2.8x, and in 2030, the ratio would be equal to 0.8x. In my opinion, the company may appear a bit expensive now, but it will be super cheap in 2025 and 2030. Notice that I am not taking into account potential dilution, sale of equity, or any new debt. I am also not including NIO sales in Europe, or the United States. Sales will be way larger in 2030 if NIO sells outside China.
NIO is a bit expensive at 13x 2021 sales. However, with the expected number of EVs to be sold in China in 2025 and 2030, the company appears cheap. From 2026, the company would trade at 0.8x-1.4x, which is not expensive with sales growth of 20% and a gross profit margin of 10%-20%. Notice that my assumptions are extremely conservative. NIO expects to sell outside China. In addition, the market share of NIO will most likely be higher than 10% from 2025. To sum up, the share price may go up and down in the near future, but in any case, long term investors will most likely profit in the long term.
Disclosure: I don’t own shares of NIO