Nio Stock Continues To Sell Off. What Next?

U.S.-listed Chinese premium electric vehicle maker Nio stock (NYSE: NIO) has declined by almost  20% over the last week, compared to the S&P 500 which was down 3.5% in the same period. With the recent sell-off, Nio stock is now down by about 43% year-to-date. While growth stocks have been out of favor with the markets as investors brace for higher interest rates, there are some specific factors weighing on Nio stock recently.  Firstly, Nio’s delivery figures have been disappointing. The company’s deliveries fell for the second consecutive month to 6,131 vehicles in February, compared to 9,652 in January and 10,489 in December 2021, trailing rivals Li Auto and Xpeng, which delivered about 8,414 and 6,225 vehicles respectively in February. While part of the decline was due to the Chinese Lunar New year, which typically slows down automotive sales, the decline was more pronounced this year due to supply chain issues that have been plaguing the automotive market. Moreover, input costs are also rising as inflation surges and this is another factor hurting automotive companies and this could limit Nio’s margins, which have expanded meaningfully in recent years. Separately, the markets have also been concerned about the regulatory crackdown on technology companies in China and greater scrutiny on Chinese companies listed in the U.S.

That being said, we think Nio stock appears to be somewhat oversold at current levels of about $19 per share. The stock trades at just about 3x consensus 2022  revenues, slightly below rivals Xpeng stock (NYSE:XPEV) and Li Auto which both trade at about 4x, and Tesla stock (NASDAQ:TSLA) which trades at around 10x forward revenue. While Nio’s overall delivery growth rate is cooling versus historical levels, the company is still expected to grow revenue by  75% this year, per consensus estimates, a bit below Xpeng but well ahead of Tesla, meaning that the depressed multiple probably isn’t warranted. Nio is also likely to expand its model lineup this year, with the launch of the ET7 full-size sedan, followed by the ET5 compact sedan, and there is a possibility that we could see more new vehicles unveiled later this year, and this could prove another catalyst for the stock. Nio is also expected to double production capacity at its plant in Hefei, China to 240,000 vehicles a year by mid-2022, and this could help volume growth in the longer term. Nio appears to have established a solid brand recall in the premium end of the market, despite the fact that it was founded just about seven years ago. For perspective, the company’s customers paid an estimated $69,700 per vehicle in China, on average, last December, ahead of the likes of Tesla and BMW and only behind Mercedes-Benz. ^[1] Check out our analysis on Nio, Xpeng & Li Auto: How Do Chinese EV Stocks Compare? for more details on how NIO stock stacks up versus its peers.

Here you’ll find our previous coverage of Nio, where you can track our view over time.

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