Weilai (NYSE:NIO) stock has been very hot in the past year, and the rebound will not stop. In the past 12 months, NIO's stock price has soared by more than 150%. After JP Morgan's sharply upgraded stock rating, NIO's stock price has soared by more than 20%, setting a record high. JPMorgan Chase raised the price target of NIO from $14 to $40.
In a way, this rebound must be cooled, right?
OK. But not in the short term.
The reality is that China's auto market is huge. This huge car market is rapidly electrifying, and NIO is the most dominant luxury car manufacturer in this market. In the next few years, NIO will sell a large number of high-end electric vehicles to Chinese consumers. As the company develops, NIO's stock price will continue to rise.
Is Weilai's valuation too high?
My previous model predicted a long-term target price of $40 for NIO stock. It is becoming more and more obvious that this price target is based on conservative models. After correcting my data based on recent business momentum, I now expect NIO to hover above $60 in the long term.
This is almost three times the price today. Therefore, needless to say, even after the sharp rise in 2020, the stock is still long-term bought and held.
bullish factor
The bullish view on NIO stock is very simple.
China is the largest country in the world with a population of 1.4 billion. A natural by-product of such a large population — most of whom are rapidly urbanizing — is that China’s auto market is also the world’s largest, with approximately 20 million new passenger cars sold every year.
Mainly due to the large and obvious need to reduce carbon emissions across the country, the Chinese government has been very active in promoting the popularization of electric vehicles in the country through subsidies and tax relief. Therefore, China's current electric vehicle market is one of the most mature in the world, with a penetration rate of about 5%.
In the next few years, the government's strong support for electric vehicles will not weaken. China remains committed to achieving a 25% penetration rate of electric vehicles by 2025. Therefore, in the next few years, China will lead the world's electric vehicle revolution, and the country's huge automobile market of more than 20 million will be electrified on a large scale.
In this market, NIO is a leader in the luxury car field, with a series of very beautiful, stylish and high-performance electric cars. These cars have long driving distances, very fast charging speeds, sporty luxury leather interiors, and full technical integration...Basically, they have the image of all the luxury goods you expect. No matter from which aspect, they are the best luxury electric vehicles in China.
NIO will sell a large number of these electric vehicles in the next few years, especially because: 1) due to its exclusive-oriented marketing strategy, the company has cultivated an exceptionally strong brand equity; 2) the company adopts a battery-as-a-service model, Consumers "rent" the battery (rather than own it), thereby reducing the price of the car by about $10,000; 3) NIO has grown from one model to three models in just two years, which means that the company will Significantly expand its automotive product portfolio in the 2020s.
In short, NIO will lead the luxury car market in China's booming electric car market in the next decade. As the company grows, NIO's stock will fly higher.
Key data
In terms of stock price, I think the price of NIO stock will exceed $60 in the long run.
This is higher than my previous long-term target price of $40. The reason for the increase is that my long-term forecast for the company has undergone some major changes, including:
1. Increase the size of China’s passenger car market to 30 million in 2030. The main reason for this revision is that the new coronavirus pandemic has suppressed the prevalence and use of carpooling globally, and has prompted many young consumers to switch to first-time car purchases.
2. The revised China's electric vehicle penetration rate in 2030 is estimated to increase from 35% to 40%. This correction is the result of the accelerated growth of China's electric vehicle market in 2020. At present, China's electric vehicle market has achieved substantial growth for two consecutive months (despite the emergence of a pandemic), and it seems that it has fully returned to a growth track of more than 20%.
3. NIO estimates that the market share of electric vehicles in 2030 will increase from 5% to 8%. There are two reasons for this revision. First, the growing demand for the luxury car market in China indicates that the proportion of the high-end electric car market will exceed 10% of the total electric car market. Second, NIO's new battery-as-a-service model has greatly reduced the initial price and will help NIO win market share for some non-luxury cars.
As a result of these upward revisions, I now predict that NIO will deliver about one million electric vehicles in 2030, equivalent to approximately US$40 billion in revenue (based on an average sales price of US$40,000) and earnings per share of US$3.75 (based on 20% ~ 12%) Operating profit margin, tax rate, and just over one million shares outstanding).
Based on the expected price-earnings ratio of 17 times (this is the historical average price-earnings ratio of the Standard & Poor's 500 Index), the long-term target price of NIO stock will exceed $60.
in conclusion
NIO stock is a long-term winner. There is no other way of expression. In China's booming electric vehicle market, which will soon become a huge market, NIO is becoming the dominant premium car manufacturer. Given the surge in demand for electric vehicles, as long as the company can maintain this favorable competitive position, in the long run, the value of NIO will far exceed $30 billion.
