What’s Next For Nio Stock After Its Mixed Q1?

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NIO
Nio

Nio stock (NYSE: NIO) published a mixed set of Q1 2022 results on Thursday, as the company was impacted by rising input costs, supply chain headwinds, and the Covid-19 lockdowns in multiple Chinese provinces.  While net losses widened to $281.2 million compared to $68.8 million in the year-ago quarter, revenue rose 24% year-over-year to $1.56 billion. The company’s closely watched gross margin metric also declined to 14.6%, from 19.5% a year ago. Nio is forecasting Q2 deliveries of between 23,000 and 25,000 vehicles, a decline from the 25,768 units delivered in Q1 as lockdowns have hurt sales over April and May, although June is expected to be a strong month for deliveries,  as Covid-19 restrictions ease.

Nio stock fell by over 11% over Thursday and Friday’s trading following the earnings report, with the stock now remaining down by 46% year-to-date, faring worse than rivals such as Li Auto (down 8% year-to-date) and Tesla (down 41%). While growth stocks have been out of favor with the markets as investors brace for rising interest rates and tightening monetary policy, there are some specific factors weighing on Nio and other Chinese EV players. For one, there are concerns about a slowdown in the Chinese economy. Moreover, there have been some concerns regarding the potential delisting of Chinese American depositary receipts (ADRs), given the dispute between the U.S. SEC and China relating to the auditing compliance of Chinese companies listed on U.S. exchanges.

Now, despite the plummeting stock price and listing concerns, the outlook for Nio’s core business actually appears pretty solid. As we’ve noted before, overall EV demand and favorable regulation in China are a big tailwind for Nio. While passenger car sales in China fell by 35.5% year-on-year in April, new energy vehicles, which include electric vehicles, saw volumes rise by 78%, per the China Passenger Car Association. This should partially alleviate concerns that a broader economic slowdown will significantly hit Nio’s business. Nio, too, has indicated that it saw an all-time high order flow in May. Moreover, consensus estimates for Nio revenue project a healthy 75% revenue growth this year with the company indicating that it was raising prices and cutting costs to better manage margins. Nio is also focusing on boosting capacity and launching new models. The company said that its new factory located at NeoPark in Hefei has started pre-production of the upcoming ET5 sedan which is to launch in September. The company will also launch a premium ES7 SUV with deliveries slated to begin in August.

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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 Xpeng and Li Auto.

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