Nio Stock Was A Laggard In 2023. Will 2024 Be Better?

NIO: Nio logo
NIO
Nio

Chinese luxury electric vehicle maker Nio stock (NYSE:NIO) delivered 18,012 vehicles for December, marking a 13.9% increase versus last year and a growth of 12.9% versus November. Nio likely benefited from higher sales of the updated ES6 SUV, which launched earlier in 2023, as well as a year-end sales promotion that included free battery swaps, accessories, and a subscription to its autonomous driving software. Overall Nio delivered 160,038 vehicles in 2023, marking an increase of 31% compared to the previous year. That said, the year-end figure was well below the company’s target of doubling 2023 sales year-over-year to about 245,000 cars. Nio’s growth rates also continue to fall behind rivals who posted even stronger monthly deliveries. For example, Li Auto delivered a record 50,353 units for the month, up almost 2.4x compared to last year. Xpeng delivered 20,115 vehicles for the month, marking an increase of 78% compared to the year-ago period.

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 25% for the S&P 500 over this roughly 3-year period. Notably, NIO stock has underperformed the broader market in each of the last three years. Returns for the stock were -35% in 2021, -69% in 2022, -7% in 2023, and -7% in 2024 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, 24% in 2023, and -1% in 2024 (YTD) – indicating that NIO underperformed the S&P in 2021, 2022, 2023 and 2024. 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, 2023 and 2024 and underperform the S&P over the next 12 months – or will it see a recovery?

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There are concerns about global EV demand, with most mainstream automakers, including Volkswagen, Mercedes, Ford, and GM indicating a softer-than-expected uptake. However, demand doesn’t appear to be an issue at the moment in China. Total sales of electric vehicles in China totaled 1.026 million units in November. Over the January to November period, total EV sales rose by 36.7% year-over-year to 8.3 million units. 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. For example, Nio posted a gross margin of 8% in Q3, down from 13.3% in the year-ago period, compared to Li Auto which posted gross margins of 22%, up from 12.7% in Q3 of 2022.

That being said, there are some positives as well. Nio has successfully tested a new electric vehicle battery that has a range of about 1000 kilometers, with its CEO taking the vehicle on a 14-hour road trip on a Nio ET7 EV that was live-streamed. The company also recently unveiled the ET9, a flagship vehicle that could cost over $112,000. The stock also presently trades at under 1.3x 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 Jan 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 NIO Return -6% -6% 33%
 S&P 500 Return -1% -1% 110%
 Trefis Reinforced Value Portfolio -4% -4% 583%

[1] Month-to-date and year-to-date as of 1/3/2024
[2] Cumulative total returns since the end of 2016

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