Is Nio Stock Poised To Recover From The Sell Off?

by Trefis Team
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Nio stock (NYSE: NIO) declined by about 6% over the last week (five trading days), compared to the S&P 500 which was down by roughly 1% over the same period. The sell-off comes partly due to increasing pressure on U.S. regulators to implement the Holding Foreign Companies Accountable Act passed last year, which could result in the delisting of some Chinese companies from U.S. exchanges if they do not comply with U.S. auditing rules. Separately, China’s top technology companies, including Alibaba and Didi Global, have also come under greater scrutiny by domestic regulators, and this is also likely impacting Nio. So will the declines continue for the stock, or is a rally looking more likely? Per data from the Trefis Machine learning engine, which analyzes historical price information, Nio stock has a 52% chance of a rise over the next month. See our analysis on Nio Stock Chances Of Rise for more details.

The longer-term outlook for Nio is also looking better. The worst of the automotive semiconductor shortage – which constrained production over Q2 – now appears to be over, with Taiwan’s TSMC, one of the world’s largest semiconductor makers, indicating that it would ramp up production considerably in Q3. This should enable Nio to ramp up its production more smoothly. Volume growth is also likely to remain robust driven by the company’s overseas expansion plans and continued growth in the Chinese market. Sales of new energy vehicles – which includes EVs, hybrids, and hydrogen vehicles – are expected to grow by over 40% each year in the next five years, per the China Association of Automobile Manufacturers.

[6/2/2021] Is The Worst of The Semiconductor Crunch Over For Chinese EV Players

Chinese electric vehicle majors Nio (NYSE: NIO) and Xpeng (NYSE: XPEV) provided mixed delivery figures for the month of May, as they continued to be impacted by the current shortage of semiconductors. While Nio delivered a total of 6,711 vehicles in May, down 5.5% from April, Xpeng was able to grow deliveries by about 10% over the last month to 5,686 units, although the number is below peak monthly sales of 6,015 vehicles witnessed in January.  Although both companies reported robust year-over-year growth numbers (2x to 6x), the sequential figures are more closely tracked for fast-growing companies.

However, things are probably going to get better from here. Nio, for instance, reiterated its Q2 2021 delivery guidance of  21,000 to 22,000 vehicles, implying that it could deliver as many as 8,200 vehicles in June, a monthly record. This is likely an indicator that the global automotive semiconductor shortage is easing off, and also a sign that Nio is holding its own in the Chinese EV market, despite mounting competition. Nio stock rallied by almost 10% in Tuesday’s trading, while Xpeng’s stock was up by about 8% following the report.

Despite the recent rally, the stocks might still be worth considering at current levels. Nio stock remains down by about 20% year-to-date while Xpeng is down by about 22%. See our analysis on Nio, Xpeng & Li Auto: How Do Chinese EV Stocks Compare? for an overview of the financial and valuation metrics of the three U.S. listed Chinese EV players.

[5/21/2021] How Do Chinese EV Stocks Compare?

U.S. listed Chinese EV players Nio (NYSE: NIO), Xpeng (NYSE: XPEV), and Li Auto (NASDAQ: LI) have underperformed this year, with their stocks down by roughly 30% each, since early January. So how do these stocks compare post the correction? While Nio and Xpeng remain pricier compared to Li Auto, they probably justify their higher valuation for a couple of reasons. Here is a bit more about these companies.

Our analysis Nio, Xpeng & Li Auto: How Do Chinese EV Stocks Compare? compares the financial performance and valuation of the major U.S. listed Chinese electric vehicle players.

Nio remains the most richly valued of the three companies, trading at about 10.5x forward revenue. Revenues are likely to grow by over 110% this year, per consensus estimates. Longer-term growth is also likely to remain strong, given the company’s wide product portfolio (it already has three models on the market), its unique innovations such as battery swapping, its global expansion plans, and investments into autonomous driving. Nio brand also has a lot more buzz, with the company viewed as the most direct rival to Tesla in China. Gross margins stood at 19.5% in Q1 2021, up from a negative 12% a year ago.

Xpeng trades at about 10x projected 2021 revenues. Sales growth is projected to be the strongest among the three companies, rising by over 150% this year, per consensus estimates. Besides its higher projected growth, investors have been assigning a premium to the company due to its progress in the autonomous driving space. Xpeng currently sells the G3 SUV and the P7 sedan and its new P5 compact sedan is likely to hit the roads later this year. Although Xpeng’s gross margins have improved, rising to about 11% over Q1, versus negative levels a year ago, they are still below Nio’s margins.

Li Auto trades at just 6x projected 2021 revenues, the lowest of the three companies. Revenues are likely to roughly double this year, with gross margins standing at 17.5% as of Q4 2020 (the company has yet to report Q1 results). The lower valuation is likely due to the company’s focus on a single product – the Li Xiang ONE, an electric SUV that also has a small gasoline engine and also due to the fact that Li Auto is behind rivals in terms of autonomous driving tech.

[10/30/2020] How Do Nio, Xpeng, and Li Auto Compare

The Chinese electric vehicle (EV) space is booming, with China-based manufacturers accounting for over 50% of global EV deliveries. Demand for EVs in China is likely to remain robust as the Chinese government wants about 25% of all new cars sold in the country to be electric by 2025, up from roughly 5% at present. [1] While Tesla is a leader in the Chinese luxury EV market driven by production at its new Shanghai facility,  Nio (NYSE:NIO), Xpeng (NYSE: XPEV), and Li Auto (NASDAQ: LI) – three relatively young U.S. listed Chinese electric vehicle players, have also been gaining traction. In our analysis  Nio, Xpeng & Li Auto: How Do Chinese EV Stocks Compare?we compare the financial performance and valuation of the major U.S. listed Chinese electric vehicle players. Parts of the analysis are summarized below.

Overview Of Nio, Li Auto & Xpeng’s Business

Nio, which was founded in 2014, currently offers three premium electric SUVs, ES8, ES6, and EC6, which are priced starting at about $50k.  The company is working on developing self-driving technology and also offers other unique innovations such as Battery as a Service (BaaS) –  which allows customers to subscribe for car batteries, rather than paying for them upfront. While the company has scaled up production, it hasn’t come without challenges, as it recalled about 5,000 vehicles last year after reports of multiple fires.

Li Auto sells Extended-Range Electric Vehicles, which are essentially EVs that also have a small gasoline engine that can generate additional electric power for the battery. This reduces the need for EV-charging infrastructure, which is currently limited in China.  The company’s hybrid strategy appears to be paying off – with its Li ONE SUV, which is priced at about $46,000 – ranking as the top-selling SUV in the new energy vehicle segment in China in September 2020. The new energy segment includes fuel cell, electric, and plug-in hybrid vehicles.

Xpeng produces and sells premium electric vehicles including the G3 SUV and the P7 four-door sedan, which are roughly positioned as rivals to Tesla’s Model Y SUV and Model 3 sedan, although they are more affordable, with the basic version of the G3 starting at about $22,000 post subsidies. The G3 SUV was among the top 3 Electric SUVs in terms of sales in China in 2019. While the company began production in late 2018, initially via a deal with an established automaker, it has started production at its own factory in the Guangdong province.

How Have The Deliveries, Revenues & Margins Trended

Nio delivered about 21k vehicles in 2019, up from about 11k vehicles in 2018. This compares to Xpeng which delivered about 13k vehicles in 2019 and Li Auto which delivered about 1k vehicles, considering that it began production only late last year. While Nio’s deliveries this year could approach about 40k units, Li Auto and Xpeng are likely to deliver around 25k vehicles with Li Auto seeing the highest growth. Over 2019, Nio’s Revenues stood at $1.1 billion, compared to about $40 million for Li Auto and $330 million for Xpeng. Nio’s Revenues are likely to grow 95% this year, while Xpeng’s Revenues are likely to grow by about 120%. All three companies remain deeply lossmaking as costs related to R&D and SG&A remain high relative to Revenues. Nio’s Net Margins stood at -195% in 2019, Li Auto’s margins stood at about -860% while Xpeng’s margins stood at -160%. However, margins are likely to improve sharply in 2020, as volumes pick up.

Valuation

Nio’s Market Cap stood at about $37 billion as of October 28, 2020, with its stock price rising by about 7x year-to-date due to surging investor interest in EV stocks. Li Auto and Xpeng, which were both listed in the U.S. around August as they looked to capitalize on surging valuations, have a market cap of about $15 billion and $14 billion, respectively. On a relative basis, Nio trades at about 15x projected 2020 Revenues, Li Auto trades at about 12x, while Xpeng trades at about 20x.

While valuations are certainly high, investors are likely betting that these companies will continue to grow in the domestic market, while eventually playing a larger role in the global EV space leveraging China’s relatively low-cost manufacturing, and the country’s ecosystem of battery and auto parts suppliers. Of the three companies, Nio might be the safer bet, considering its slightly longer track record, higher Revenues, and investments in technology such as battery swaps and self-driving. Li Auto also looks attractive considering its rapid growth – driven by the uptake of its hybrid powertrains – and relatively attractive valuation of about 12x 2020 Revenues.

Electric vehicles are the future of transportation, but picking the right EV stocks can be tricky. Investing in Electric Vehicle Component Supplier Stocks can be a good alternative to play the growth in the EV market.

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Notes:
  1. China races ahead in electric vehicles, Financial Times []
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