What’s Next For Nio Stock?

NIO: Nio logo

The sell-off in Chinese luxury electric vehicle maker Nio stock (NYSE:NIO) has continued over 2023, with the stock down by roughly 8% year-to-date. So what’s driving the continued sell-off in the stock? Nio’s results for Q4 2022 were unimpressive. Although revenue grew by 62% year-over-year to RMB 16.06 billion ($2.14 billion), as deliveries grew to about 40,000 units, it fell short of Street estimates by nearly 10%. Profitability also took a hit, with net losses coming in at $0.51 per share amid supply chain issues and cost pressure. For perspective, automotive gross margins declined to just 6.8% in Q4 compared to 20.9% in the fourth quarter of 2021. Moreover, Nio’s guidance for Q1 2023 was lighter than anticipated as the company expects to deliver between 31,000 and 33,000 vehicles over the quarter, marking a decline of as much as 22% versus the fourth quarter. Moreover, Nio only expects to generate sales of about $1.6 billion for Q1, well below Street estimates.

However, it’s likely that the stock could be bottoming out. Nio currently trades at just about $9 per share, about 85% off its all-time highs and down 57% over the past 12 months. The overall outlook for the company is also improving, in our view. The easing of the zero-Covid policy should prove positive for the Chinese economy after over two years of stringent lockdowns. China’s Purchasing managers index – an indicator of manufacturing activity – hit an 11-year high in February. Nio has also been refreshing its product lineup, with the new EC7 coupe SUV, as well as the all-new ES8 SUV, and this could also help demand and average selling prices. The markets also expect Nio’s growth to pick up, with consensus estimates pointing to revenue of about $12 billion for this year, marking a 70% increase versus last year. We also think Nio’s valuation remains relatively compelling. The stock presently trades at just about 1.3x estimated 2023 revenues, which is below Tesla (6x) and Li Auto (1.7x). See our analysis of Nio, Xpeng & Li Auto: How Do Chinese EV Stocks Compare? for a detailed look at how Nio stock compares with its rivals Li Auto and Xpeng.

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Returns Mar 2023
MTD [1]
YTD [1]
Total [2]
 NIO Return -5% -8% 40%
 S&P 500 Return 0% 4% 78%
 Trefis Multi-Strategy Portfolio -3% 4% 228%
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[1] Month-to-date and year-to-date as of 3/28/2023
[2] Cumulative total returns since the end of 2016

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