Down 40% This Year, Will New Models And Budget EV Help Nio Stock Rebound?

Chinese luxury electric vehicle maker Nio stock (NYSE:NIO) posted mixed delivery numbers for February, delivering 8,132 cars for the month, down 19% from January and 33% lower from the year-ago period.  The decline was not really surprising, given that automotive sales in China are usually weak in January and February, due to the extended Chinese New Year holiday, which impacts manufacturing and sales. The holiday fell between February 10 and 17 this year, versus last year when it fell between January 21 and 27. Moreover, Nio’s customers are also likely to have waited a bit for 2024 model year updates which are due in March and this is also likely to have impacted its delivery numbers. In comparison, Nio’s rival Xpeng sold 4,545 EVs for the month, down  44.9% from January, and down 24% from the year-ago period, while Li Auto sold 20,251 cars, down 35% from January, although it marks an increase of about 22% compared to last year.

Amid the current backdrop, 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 TM, and even for the megacap 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?

There are concerns about global EV demand, with most mainstream automakers seeing tepid demand and scaling back on their electrification goals. For instance, Mercedes-Benz dialed back on its target of going all-electric by 2030, now estimating that only 50% of total sales would be EVs. We’ve seen similar production scalebacks from the likes of Ford as well. While the Chinese EV market is poised to post double-digit growth this year, competition and price wars are mounting. 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 2023, 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. The company has yet to report Q4 results.  That being said, there are some positives for Nio as well. The company has been steadily expanding its model base. The company now has a total of five SUVs and three sedans in its model line. Nio is also making progress with its battery technology and battery-swapping partnerships. 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 just 1x 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.

[1] Returns as of 3/4/2024
[2] Cumulative total returns since the end of 2016

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