With Deliveries Picking Up, What Lies Ahead For Nio Stock?

NIO: Nio logo

Chinese luxury electric vehicle maker Nio stock (NYSE:NIO) published its delivery numbers for August, indicating that it sold a total of 19,329 EVs for the month, marking an increase of 81% year-over-year, although this was slightly below the July number. The numbers were in line with the company’s guidance of 18,300 to 19,000 vehicles each month of the quarter. Nio’s performance was considerably better than rival Xpeng, which delivered 13,690 vehicles in August. However, Nio continued to lag behind rival Li Auto which delivered 34,914 vehicles for the month, driven by robust sales of its EVs which combine a gasoline engine for range extension. While uptake for Nio’s vehicles was sluggish in early 2023, amid mounting competition from EV bellwether Tesla and Li Auto, as well as slower-than-expected Chinese economic growth following the reopening from stringent Covid-19 lockdowns, Nio has benefited from the release of the updated ES6 SUV, which was launched in May. Nio also cut prices on its vehicles by about $4,200 in early June, accounting for close to 10% of the starting price of some vehicles and this could have stimulated demand to a certain extent.

Interestingly, NIO has had a Sharpe Ratio of 0.5 since early 2017, lower than 0.6 for the S&P 500 Index over the same period. This also falls short of the Sharpe of 1.3 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.

Now, despite the rising deliveries, Nio stock has performed the worst of its peers, rising by just about 9% year-to-date, and still remains down by about 80% below all-time highs seen in 2021. Investors have been concerned about the company’s recent price cuts, which impacted average selling prices and reduced gross margins in Q2 to just 1%, compared to around 13% in the year-ago quarter. However, there are still some reasons to consider the stock. While Nio’s overall performance was tough over the first half of the year, the company expects deliveries of over 20,000 units a month over Q4. Nio is also targeting gross margins of about 15% by the fourth quarter of this year, driven by the volume ramp-up of new models. The stock also presently trades at just about 2x estimated 2023 revenues, which is well below other EV players such as Tesla and Li Auto. 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.

Returns Sep 2023
MTD [1]
YTD [1]
Total [2]
 NIO Return 3% 9% 66%
 S&P 500 Return -1% 16% 99%
 Trefis Reinforced Value Portfolio -1% 30% 568%
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[1] Month-to-date and year-to-date as of 9/7/2023
[2] Cumulative total returns since the end of 2016

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