We recently compiled a list of 10 High Growth Lithium Stocks to Invest In. In this article, we will look at where NIO Inc. (NYSE:NIO) ranks among high growth lithium stocks to invest in.
Lithium Prices Drop but Demand Signals Long-Term Gains
Rio Tinto announced its acquisition of U.S.-based Arcadium for $6.7 billion, positioning itself as the world’s third-largest lithium miner. The deal comes while lithium prices are falling these days, which are driven by oversupply from China and a slowdown in EV sales, which has made lithium miners attractive takeover targets.
Despite current price drops, the company’s CEO is optimistic about long-term lithium demand, a sentiment shared by Frank Nicolich, CRU Group vice president of base and battery metals. In an interview with Julie Hyman and Josh Lipton of Yahoo Finance, Nicolich explained that while prices are low due to oversupply, mining deals like the one mentioned above are long-term investments.
He expects lithium demand to increase three to four times over the next decade as the transition to clean energy accelerates, making substantial new supply essential. Lithium is highly valued for batteries as it offers the right chemical and electrochemical properties. Although sodium-ion technology may eventually be an alternative, lithium remains universally used in all battery chemistries for now.
Regarding future lithium production, Nicolich pointed to Africa, especially the old tin mines, as a significant near-term source. South America remains a major player, while North America and Canada also have promising lithium deposits. However, U.S. production is currently small, with potential for growth if prices rise.
As lithium demand grows, Nicolich expects more acquisitions as miners seek to position themselves for the future. For investors, the lithium market is still developing. While futures markets for lithium are emerging, such as in China and potentially with the CME, investing in lithium is currently best done through miners rather than direct commodity investments.
We mentioned a similar long-term sentiment in our article about the biggest lithium stocks article posted last month. Here is an excerpt from the article:
“Despite challenges like pricing and demand headwinds in 2023, the U.S. and Canadian lithium sectors are set to make progress in 2024, with several construction projects potentially starting to boost domestic lithium supply. According to an S&P Global report, while the lithium market has seen slow activity and falling prices, especially in Asia, long-term demand fundamentals remain strong due to the global transition toward electric vehicles (EVs) and energy storage.
Even though lithium prices dropped in 2023 after reaching record highs in 2022, the long-term outlook for the EV market remains promising. According to the report, EV sales are expected to reach 30.81 million units by 2027, and lithium prices are expected to stabilize between $20,000 and $25,000 per metric ton in the coming years. Despite the industry’s cyclical nature, current pricing remains strong enough to attract investment, especially with regulatory support driving the EV transition in countries like Canada.”
Our Methodology
For this article, we used lithium ETFs to identify nearly 50 stocks and we narrowed our list to 30 companies with significant operations in the lithium and battery market. Next, we chose 10 stocks with double-digit 5-year compound annual growth rates (CAGR) in revenue (at least 10%). Our primary metric for listing the stocks was hedge fund sentiment and for the secondary one, mainly for the stocks not trading on NYSE or NASDAQ, we listed according to their average analyst price target upside. The hedge fund sentiment was taken from Insider Monkey’s Q2 database of 912 elite hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
NIO Inc. (NYSE:NIO)
5-Year Revenue CAGR: 51.18%
Average Price Target Upside: 11.80%
Number of Hedge Fund Holders: 20
One of the high-growth lithium stocks, NIO Inc. (NYSE:NIO) specializes in premium smart electric vehicles and is recognized for its battery swapping technology and Battery as a Service (BaaS) model, offering flexible battery subscription options. Its product lineup includes various SUVs and sedans, including the ET9, set for delivery in 2025.
Its vehicles feature innovations like battery swapping and compatibility with different battery ranges. The company operates in China and several European countries, with plans for further global expansion. It has research and development centers in key global locations. Its battery swapping allows quick battery changes and health assessments, while BaaS decouples battery costs from vehicle prices, which provides users with flexible battery upgrades.
In 2023, NIO (NYSE:NIO) introduced a 150 kWh semi-solid-state battery that extends the driving range of its vehicles to about 930 kilometers (578 miles) per charge, surpassing traditional lithium-ion batteries.
The new technology blends the high energy density of solid-state batteries with the practicality of lithium-ion, which improves vehicle performance. The upgradeable nature of the battery pack adds value for current NIO owners. The company is also developing other battery technologies, including 4680 cells and lithium manganese iron phosphate (LMFP) batteries, to further boost energy density and performance.
NIO (NYSE:NIO) announced its earnings in September where it reported record deliveries of 57,373 vehicles in Q2, a 144% increase year-over-over. The company has captured over 40% of China’s BEV market for models priced above RMB 300,000 (RMB 1 = US$ 0.14).
For the third quarter, it reported a record-high quarterly delivery of 61,855 vehicles, representing an 11.6% growth compared to the previous year. In September alone, the company delivered 21,181 vehicles, a 35.4% year-over-year increase. The deliveries included 20,349 vehicles from NIO’s (NYSE:NIO) premium smart electric vehicle brand and 832 from its family-oriented brand, ONVO. ONVO’s first model, the L60, a mid-size smart electric SUV, launched on September 19, with deliveries starting later that month. The company’s cumulative deliveries reached 598,875 as of September 30, 2024.
Overall NIO ranks 4th on our list of high growth lithium stocks to invest in. While we acknowledge the potential of NIO as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NIO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure. None. This article is originally published on Insider Monkey.