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How Does NIO Stock’s Valuation Look after the Surge?

Mohit Oberoi, CFA - Author

Jul. 2 2020, Published 9:54 a.m. ET

  • NIO and Tesla stocks have surged this year amid optimism about EVs (electric vehicles). Some of the ancillary EV plays have also risen. Investors have lapped on to companies that would benefit from vehicle electrification.
  • In this article, we’ll look at NIO’s valuation after the recent rise.
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NIO stock

NIO (NYSE:NIO) stock has risen 92% this year. While the stock was trading on a negative note in the first quarter, it bounced back sharply in the second quarter. Broader US stock markets also had their best quarter since 1998. While the rise in broader markets helped NIO’s second-quarter price action, some of the other factors also helped the stock move higher as I noted in a previous article.

EV makers

Tesla (NASDAQ:TSLA) stock has also been on a fire. So far, the stock has risen 158% this year. While several analysts have sounded cautious about soaring valuations, EV makers’ stock prices have continued to surge. Recently, Goldman Sachs downgraded NIO stock after its sharp rally. Some of the ancillary EV plays have also caught investors’ attention. On Tuesday, Blink Charging stock soared 41%. The company provides charging equipment for electric vehicles.

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Currently, NIO has been making losses on the gross profit level. Analysts don’t expect the company to turn around a net profit for the next few years. Even Tesla, which has been listed for a decade now, has never made an annual profit. However, the company has posted profits for three consecutive quarters. CEO Elon Musk has been pushing for break-even in the second quarter, which a leaked email showed.

NIO’s valuation

Looking at the valuation, NIO currently trades at a 2022 EV-to-sales multiple of 2.35x and a 2022 EV-to-EBITDA multiple of 78x. Looking at Tesla’s valuation, it trades at an EV-to-sales multiple of 5.3x its consensus 2022 revenues. Tesla’s 2022 EV-to-EBITDA multiple is 29x. While Tesla expects to be sustainably profitable now, NIO expects to post positive vehicle gross margins in the second quarter and a double-digit gross profit margin by the end of this year.

However, NIO’s financial leverage is much higher compared to Tesla. Companies with higher debt generally trade at a lower multiple due to the higher risk. Recently, NIO issued more American depository shares that would help it strengthen its balance sheet. The capital infusion from strategic investors is another positive development.


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