When Chinese electric vehicle (EV) maker Nio (NYSE: NIO) went public in September 2018, it seemed like an interesting alternative to investing in Tesla (NASDAQ: TSLA). Nio was growing rapidly and stood out from the competition because it used swappable batteries, which could be quickly replaced across its network of battery stations, instead of traditional chargers.

Prior to its public debut, Nio turned a lot of heads with the introduction of its high-end EP9 supercar in 2016. That vehicle was never mass produced, but it generated a lot of buzz for Nio’s brand before it rolled out its first commercial vehicle the following year. Today, Nio produces a wide range of electric sedans and SUVs.

Nio went public at $6.28 per American depositary shares, and its stock skyrocketed to a record high of $62.84 on Feb. 9, 2021, amid the meme stock rally. At its peak, Nio’s enterprise value reached $91 billion, or 16 times the revenue it would generate in 2021. But today, Nio trades at about $5, with an enterprise value of less than $10 billion.

Nio’s stock ran out of juice as its deliveries slowed down, competitors squeezed its margins, and it racked up steep losses. Rising interest rates and the simmering tensions between the U.S. and China made the company’s stock even less appealing. But over the long term, could Nio bounce back and become even more valuable than Tesla by 2050?

How fast is Nio growing?

From 2019 to 2023, Nio’s deliveries increased at a compound annual growth rate (CAGR) of 67%. However, its growth decelerated significantly over the past two years.

Data source: Nio.

That slowdown was caused by supply chain constraints, the sluggish Chinese economy, and fierce competition across the EV market. The ongoing price war slashed its vehicle margins from 20.1% in 2021 to 9.5% in 2023.

But on the bright side, Nio’s deliveries accelerated in the second half of 2023 as its vehicle margins expanded sequentially for three consecutive quarters. Its year-over-year growth in monthly deliveries also sped up in March and April. Those numbers suggest that Nio’s business is gradually stabilizing as it passes its cyclical trough.

What challenges does Nio face?

From 2019 to 2023, Nio’s revenue rose at a CAGR of 63%. Looking ahead, analysts expect its revenue to grow at a more moderate CAGR of 26% from 2023 to 2026. However, some of that growth depends on Nio’s ability to expand beyond China, but those efforts could be thwarted by tighter overseas regulations for Chinese EVs. Nio has been gradually expanding into Europe, but the European Commission launched a probe into Chinese EVs last October and is reportedly mulling higher tariffs on those vehicles. The U.S. also recently quadrupled its tariffs on Chinese EVs to 100%.

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In China, Nio’s vehicle margins could be capped by the macro headwinds and the persistent price war, which was exacerbated by Tesla’s price cuts over the past year. Nio could also struggle to narrow operating losses as it launches new vehicles and expands its network of capital-intensive battery swapping stations.

For now, analysts expect Nio to shrink operating losses through 2026, but it will remain deeply unprofitable. The company’s high debt-to-equity ratio of 3.4 could also make it tough to raise fresh cash as long as interest rates stay elevated.

But could it be worth more than Tesla?

Nio can be compared to Tesla back in 2017, when it only delivered 103,091 vehicles for the full year. But from 2017 to 2023, Tesla’s deliveries rose at a CAGR of 61% to 1.81 million. Its revenue increased at a CAGR of 42%.

Analysts’ estimates for Nio suggest it will grow at a much slower rate than Tesla. Back in 2017, Tesla benefited from its first-mover advantage in the EV space, generous tax breaks and government subsidies, and a healthier macro environment. Today, Nio faces a more saturated market, the threat of higher tariffs, and tougher macroeconomic headwinds.

But let’s assume Nio’s growth stabilizes, it keeps expanding, and economies of scale kick in. If the company can boost its top line to a respectable CAGR of 15% from 2023 to 2050, its revenue would rise from $7.8 billion to about $350 billion. If it’s trading at a reasonable 3 times sales by then, its enterprise value would exceed $1 trillion.

That would be higher than Tesla’s current enterprise value of $555 billion. Yet Tesla will likely continue to grow as the global EV market expands, and it will likely still be worth a lot more than Nio by the middle of the century. So for now, it’s futile to directly compare Nio to Tesla. But over the long term, if this smaller Chinese EV maker — which currently trades at just 1x this year’s sales — gets its act together, Nio might generate much bigger gains than Tesla.

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nio and Tesla. The Motley Fool has a disclosure policy.

Will Nio Be Worth More Than Tesla by 2050? was originally published by The Motley Fool