Do Easing Regulatory Headwinds & Strong Deliveries Make Nio Stock A Buy?
U.S.-listed Chinese premium electric vehicle maker Nio stock (NYSE:NIO) has declined by almost 15% over the last week, trading at just about $20 per share. While the sell-off comes amid concerns that the Federal Reserve could go for more aggressive rate hikes to combat soaring inflation, there have actually been quite a few positive developments for Nio in recent weeks. The company’s deliveries over March picked up considerably from February levels, rising by 62.8% month over month to 9,985 vehicles. Deliveries for Q1 2022 stood at 25,768 vehicles, an increase of 28.5% year over year, marking a quarterly record for the company. Separately, the Financial Times reported that Nio was in talks to license its battery swapping technology to European automakers, in a move that could expand Nio’s market. The stock has also seen some upgrades by brokerage analysts over the last few weeks.
We still think Nio stock remains undervalued at current levels. While Nio indicated on Saturday that it would pause production at its Hefei plant as the recent Covid-19 surge in China impacts its suppliers, we don’t see this as meaningfully impacting the deliveries for the full year. The stock trades at just about 3.5x consensus 2022 revenues, well below Tesla stock (NASDAQ:TSLA) which trades at around 12x forward revenue. Nio’s revenue growth is also likely to remain robust, coming in at 65% levels per consensus estimates, compared to around 55% for Tesla, per consensus estimates. Although Nio remains loss-making, margins are expanding. Vehicle gross margins rose to 20.9% in Q4 2021, up from 17.2% in Q4 2020 and 18.0% in Q3 2021, meaning that Nio could be solidly profitable as it scales up revenues. The regulatory overhang over U.S.-listed Chinese stocks – which have faced delisting concerns – could be easing. There have been reports that the Chinese Securities Regulatory Commission was working to loosen auditing rules while making auditing reports for Chinese ADRs available to U.S. regulators. This could potentially help Nio stock, which remains down by close to 40% year-to-date.
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.
| Returns | Apr 2022 MTD [1] |
2022 YTD [1] |
2017-22 Total [2] |
| NIO Return | 1% | -33% | 234% |
| S&P 500 Return | 0% | -5% | 103% |
| Trefis Multi-Strategy Portfolio | 0% | -8% | 262% |
[1] Month-to-date and year-to-date as of 4/11/2022
[2] Cumulative total returns since the end of 2016
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