Is Nio Stock Worth the Risk at $4?
Chinese luxury electric vehicle maker Nio stock (NYSE:NIO), has declined by about 55% year-to-date. This compares to rival Xpeng stock (NYSE:XPEV) which is down by 46% over the same period. Nio posted a relatively strong set of monthly deliveries in July, shipping 20,498 vehicles, roughly flat versus last year, and down by about 3% sequentially. While SUV sales grew, the company saw sedan sales decline sequentially. Overall the carmaker has now delivered 107,924 vehicles year-to-date for 2024, up 43.9% year-over-year. In comparison, Li Auto (NASDAQ:LI) , which is the largest of the emerging EV players in China, delivered 51,000 vehicles for July, an increase of 49.4% versus last year, while Xpeng delivered 11,145 vehicles, up 1% versus last year.
NIO stock has suffered a sharp decline of 90% from levels of $50 in early January 2021 to around $4 now, due to concerns about the Chinese economy and increasing trade barriers for the import of Chinese EVs into both the U.S. and the E.U. Nio’s uneven growth rates and loss of ground to rival Li Auto also appear to be holding the stock back. This compares to 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?
Despite concerns about the economy and weakness in the global EV market, the Chinese EV space is still showing promise. A few months ago, China introduced new incentives of RMB 10,000 (approximately $1,410) for consumers who replace their gasoline cars with electric and low-emission vehicles and there have been reports that this subsidy could be doubled to 20,000 yuan ($2,800) per vehicle. This could benefit Nio, which intends to enter the lower end of the EV market, with its new sub-brand model, the Onvo L60. This new SUV is aimed at the mass market with a price starting at RMB 219,900 (about $30,300) which is below Nio’s main brand vehicles which are typically priced north of RMB 300,000. Now, Nio stock trades at about $4 per share, about 0.8x consensus 2024 revenues, which is not very expensive considering that the company’s revenues are projected to grow by more than 20% this year and by over 35% next year. That being said, the risks for Chinese stocks are typically higher given the potential regulatory and political concerns. The trade wars between the U.S. and China and rising trade barriers in Europe also pose a risk for companies such as Nio. See our analysis of Nio, Xpeng & Li Auto: How Do Chinese EV Stocks Compare? for a detailed look at how Li stock compares with its rivals Nio and Xpeng.
| Returns | Aug 2024 MTD [1] |
2024 YTD [1] |
2017-24 Total [2] |
| NIO Return | -9% | -55% | -36% |
| S&P 500 Return | 0% | 16% | 147% |
| Trefis Reinforced Value Portfolio | 0% | 7% | 695% |
[1] Returns as of 8/2/2024
[2] Cumulative total returns since the end of 2016
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