Will A Lower Cost EV Line Up Help Drive Nio’s Stock Higher After 33% Fall Last Month?

NIO: Nio logo
NIO
Nio

Chinese luxury electric vehicle maker Nio stock (NYSE:NIO) delivered 10,055 vehicles for January, marking an 18% increase from 8,506 a year ago although it was down almost 44% from 18,012 units delivered in December. While year-over-year sales growth was likely driven by higher sales of the updated ES6 SUV, which launched in early 2023, as well as year-end sales promotions that included free battery swaps, and accessories, the decline versus December was due to seasonality, which impacts the broader Chinese automotive space. China celebrates close to a full week of the Lunar New Year holidays during January, making it a lean period for the car industry. Nio’s growth rates also continue to fall behind rivals who posted stronger monthly deliveries. For example, Li Auto delivered a record 31,165 units for the month, up almost 2x compared to last year. Xpeng delivered 8,250 vehicles in January, up 58% year-on-year but down 59% from December.

NIO stock has suffered a sharp decline of 90% from levels of $50 in early January 2021 to around $6 now, vs. an increase of about 30% 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 -7% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – 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 and even for the mega-cap stars GOOG, TSLA, and MSFT. 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?

There are concerns about global EV demand, with most mainstream automakers, including Tesla, Volkswagen, Mercedes, Ford, and GM indicating a softer-than-expected uptake. While things have remained positive in China, 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 for Nio as well. The company is making progress with its battery technology and battery-swapping partnerships. 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. Nio has opened its battery-swapping network to the entire industry while looking to build 1,000 battery-swap stations across China. Nio is also looking to enter the lower end of the market via new sub-brands, expanding beyond its premium price range. For example, the company plans to launch EVs at a price tag of about $28,000 sometime in early 2024, under a brand called Alps. 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 Feb 2024
MTD [1]
Since start
of 2023 [1]
2017-24
Total [2]
 NIO Return -1% -43% -13%
 S&P 500 Return 2% 29% 121%
 Trefis Reinforced Value Portfolio 1% 39% 614%
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[1] Returns as of 2/3/2024
[2] Cumulative total returns since the end of 2016

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