Nio’s Growth Is Set To Pick Up. Is The Stock A Buy?

NIO: Nio logo
NIO
Nio

Nio stock (NYSE:NIO) posted a mixed set of Q2 2022 results on Wednesday, while also providing a slightly weaker-than-expected delivery and revenue outlook for Q3. While revenue rose 22% year-over-year to about RMB 10.29 billion  ($1.54 billion) driven by slightly higher volumes and average selling prices, net losses widened to RMB 2.76 billion ($411.7 million) due to rising operating expenses and weaker gross margins. For perspective, vehicle gross margins stood at 16.7%, compared to 20.3% in the year-ago period, likely due to inflation and supply chain challenges. For the third quarter, Nio projects that it will deliver between 31,000 and 33,000 vehicles, marking a year-over-year increase of between 27% to 35%. While this is well ahead of the average 25,000 vehicles that the company has been delivering over the last four quarters, the markets were apparently expecting better. Nio’s rivals Xpeng and Li Auto also guided for weaker-than-expected deliveries for Q3, although Nio appears to be the only one poised to grow on a sequential basis.

Nio stock remains down by about 45% year-to-date, amid the broader market rotation away from growth stocks, rising inflation, and concerns regarding the delisting of Chinese stocks from U.S. exchanges. Moreover, there are also concerns regarding the Chinese economy, given the recent Covid-19 lockdowns and the crisis in the real estate market. However, there are a couple of factors that could help Nio stock in the near term. Overall EV demand and favorable regulation in China remain a big tailwind for EV players in China. Between January and July, deliveries of new energy vehicles – a broad term that includes hybrids, EVs, and fuel cell vehicles – almost doubled versus last year. Nio also has new models in the pipeline including the new ES7 SUV, which starts at about $78,000, as well as the ET5 sedan which is on track to begin production later this month, which could help to drive volumes further. Moreover, while Nio has focused on the premium EV market thus far, there have been reports that the company is looking to enter the low-end market with a new sub-brand. This could help the company drive additional volumes.

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 Li Auto and Xpeng.

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 Returns Sep 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 NIO Return -12% -45% 174%
 S&P 500 Return 1% -17% 78%
 Trefis Multi-Strategy Portfolio 0% -15% 235%

[1] Month-to-date and year-to-date as of 9/7/2022
[2] Cumulative total returns since the end of 2016

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