Down 40% In The Last Three Months, Where Is Nio Stock Headed?

NIO: Nio logo
NIO
Nio

Chinese luxury electric vehicle maker Nio stock (NYSE:NIO) delivered 16,074 vehicles for the month of October marking an increase of 60% year-over-year. Deliveries were also up by 3% compared to September. While Nio didn’t spell out what drove its growth, the company likely benefited from the release of the updated ES6 SUV, which was introduced in May. Price cuts during the second quarter also likely stimulated demand to an extent. Overall, for this year, Nio has delivered 126,067 vehicles marking an increase of 36.3% year-over-year.  That said, Nio’s growth rates continue falling behind rivals who posted even stronger monthly deliveries. For example, XPeng delivered 20,002 vehicles, up almost 4x compared to last year and up 30% compared to the previous quarter.  Li Auto also saw deliveries surge by almost 4x year-over-year to a record 40,422 units, driven by strong demand for its three L-Series models which combine gasoline generators to extend the range of its EVs. In September, Li delivered 36,060 units.

Amid the current delivery backdrop, NIO stock has suffered a sharp decline of 85% from levels of $50 in early January 2021 to around $8 now, vs. an increase of about 15% for the S&P 500 over this roughly 3-year period. Notably, NIO stock has underperformed the broader market in each of the last 3 years. Returns for the stock were -35% in 2021, -69% in 2022, and -19% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 14% in 2023 (YTD) – indicating that NIO underperformed the S&P in 2021, 2022, and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could NIO face a similar situation as it did in 2021, 2022, and 2023 and underperform the S&P over the next 12 months – or will it see a recovery?

Nio stock has performed the worst of its peers, declining by about 18% year-to-date, and still remains down by over 85% below all-time highs seen in 2021. There are also concerns about global EV demand, with most mainstream automakers, including Volkswagen, Mercedes, Ford, and GM indicating a softer-than-expected uptake. Automotive chip suppliers have also flagged weaker-than-expected uptake for automotive semiconductors for the fourth quarter. However, demand doesn’t appear to be an issue at the moment in China. Fully battery electric vehicles accounted for about 25% of the country’s automotive sales during the month of September. However, competition is mounting and this has resulted in considerable price wars. Investors have been concerned about Nio’s price cuts, which impacted average selling prices and reduced gross margins in recent quarters. Over the June quarter, gross margins stood at just 1%, down from over 13% in the year-ago quarter. However, there are still some reasons to consider the stock.  Nio also previously indicated that it would be targeting gross margins of about 15% by the fourth quarter of this year, driven by the volume ramp-up of new models. There were also reports that the company could cut its workforce by about 10% in a move that could reduce costs. The stock also presently trades at under 1.5x 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 Nov 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 NIO Return 8% -19% 24%
 S&P 500 Return 4% 14% 96%
 Trefis Reinforced Value Portfolio 3% 22% 524%
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[1] Month-to-date and year-to-date as of 11/8/2023
[2] Cumulative total returns since the end of 2016

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