Could buying NIO shares at $9 make me rich?

NIO (NYSE: NIO) shares are listed on the New York Stock Exchange more than four years now. And in that time, Chinese electric vehicle (EV) manufacturers have made significant gains, first in mainland China and more recently in continental Europe.

But despite this progress, NIO’s share price has not followed suit. So can stocks at $9 make me rich long term?

Blue sky thoughts

NIO’s corporate motto is ‘Blue Sky Coming’. This is related to the time when William Li, co-founder and CEO of NIO, would look out of the window in Shanghai and see the smog darkening the city sky.

Li said:I founded NIO in 2014. At that time, pollution in China made the sky gray. I wanted to make some impact on the environment and bring the blue sky back“.

The Chinese government also wants to reduce pollution, especially through the mass adoption of EVs. So I’m glad that the company is in line with the government’s official policy on this issue. It is far better to go with the grain of society than against it.

Innovation

With today’s technology, it often takes an hour or more to fully charge an EV battery. But with NIO’s battery-swapping station – where the depleted battery is changed to full charge – the whole process can take as little as three minutes. That’s good for NIO customers, who have the option to subscribe to this battery-as-a-service package.

Of course, the downside is that these stations cost money to build first and then to maintain. As of December 31, 2022, the automaker had 1,315 in operation, and plans to operate 4,000 by 2025 (including 1,000 outside China).

I don’t know if this battery replacement technology will give NIO a long-term competitive advantage or just be a money pit. But it demonstrates that the company is willing to take innovative risks to differentiate itself from its EV rivals.

That’s important, because differentiation will be key as the competition heats up. Beyond Teslafacing domestic competition from the like Li Auto, XPengand BYD. Then there are the legacy automakers that are investing heavily in the EV space. So I see increasing competition as a risk here.

However, the size of the EV market in China should produce some big winners. NIO looks good to be one of them.

A low growth stock

For 2022, the company will deliver 122,486 vehicles in total, an increase of 34% year-on-year. Annual revenue for the year 2024 is estimated to be approximately $18 billion. With a current market capitalization of $15.5bn, that means the stock is currently worth less than 1 times forward sales. That’s pretty cheap for a company that’s still growing rapidly in a growing industry.

Despite being labeled the ‘Tesla of China’, the company is 40 times smaller than the US car market today. Unlike its competitors, NIO is not yet profitable. But if it can start turning a profit sooner rather than later, I believe the stock at $9 has great potential to improve shareholders.

So, I will start building a long-term position in the stock as soon as I have the capital available.