Nio’s Deliveries Doubled In June. Why Is The Stock Still Lagging?

NIO: Nio logo
NIO
Nio

Chinese luxury electric vehicle maker Nio stock (NYSE:NIO), has declined by about 47% year-to-date. This compares to rival Xpeng stock (NYSE:XPEV) which is down by 29% over the same period. Nio posted a record set of monthly deliveries in June, shipping a total of 21,209 vehicles – a 98% year-over-year increase. Deliveries for the full quarter also rose by 144% compared to last year to 57,373 units. This is ahead of the quarterly guidance of 54,000 and 56,000 units that the company issued in June.  Nio has benefited from changes it made to its EV battery rental program in March and also due to a favorable comparison with last year when sales saw a decline. Nio’s growth was considerably stronger than its rivals. In comparison, rival Xpeng delivered 10,668 EVs for June, representing a 24% increase year-over-year, while Li Auto (NASDAQ:LI) , which is the largest of the emerging EV players in China, delivered 47,774 vehicles for June 2024, an increase of 46.7% compared to last year, driven by the launch of a lower priced EV model.

Despite the recent strength in Nio’s deliveries, the stock has suffered a sharp decline of 90% from levels of $50 in early January 2021 to around $4 now, vs. an increase of about 45% 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; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and HD, and even for the mega-cap stars GOOG, MSFT, and AAPL.

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?

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Nio stock has a couple of things going for it. In May, the automaker unveiled the first vehicle under its lower-priced Onvo brand, taking on Tesla’s Model Y crossover, which is the world’s best-selling EV. The new vehicle will have an introductory price of RMB 219,900 yuan (about $30,500), which is about 10% below Tesla’s Model Y in China, and should go on sale around September of this year. Nio intends to expand the Onvo brand, adding one new model per year under the new low-priced brand, the next of which is expected to be a model targeting larger families. The Chinese government has also been supporting the EV industry, recently announcing new incentives of RMB 10,000 (about $1,410) for consumers to trade their older gasoline cars for electric and low-emission vehicles by year-end. This incentive could benefit mass-market EVs more than luxury vehicles, potentially helping Nio’s Onvo brand.

That said, it remains to be seen how well the company will fare. The Chinese EV market is extremely crowded, with over 100 brands competing in the space. There has also been a severe price war, with players including Tesla reducing prices for their vehicles multiple times over the past year while scaling back production. Now Nio is looking to keep costs low with its new models, with the company buying batteries from BYD, while abandoning plans to produce batteries in-house. Nio has also invested considerably into building out its EV charging infrastructure including battery-swapping and charging stations and this could also give the company an advantage over rivals. Nio stock trades at about $4.50 per share, just about 1x consensus 2024 revenues. 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 Jul 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 NIO Return 7% -51% -30%
 S&P 500 Return 0% 15% 145%
 Trefis Reinforced Value Portfolio 0% 6% 653%

[1] Returns as of 7/2/2024
[2] Cumulative total returns since the end of 2016

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