Why Is Nio Stock Down 55% Despite Surging Deliveries?
Chinese luxury electric vehicle maker Nio stock (NYSE:NIO) has declined by close to 59% year-to-date. This compares to rival Xpeng stock (NYSE:XPEV), down by 52% over the same period. The sell-off comes despite Nio’s relatively strong delivery performance. For perspective, the company sold a total of 107,924 vehicles year-to-date in up to July, up 43.9% year-over-year. This is also ahead of Li Auto (NASDAQ:LI), the largest of the emerging EV players in China, which saw 39% year-over-year growth in the same period. So what are some of the trends likely weighing Nio stock down?
Nio’s Q1 2024 results were weaker than expected with the company posting a loss of $0.36 per share on sales of $1.4 billion. Revenues declined by 7.2% year-over-year and by 42% on a sequential basis as Nio has been facing mounting competition. The Chinese EV market is extremely crowded, with over 100 brands competing in the space. There has also been an intense price war, with players including Tesla reducing prices for their vehicles multiple times over the past year. Nio’s average selling prices for the last quarter came in at RMB 278,000 ($38,850) down about 6% compared to last year. While Nio is expected to see revenues pick up considerably in Q2 (consensus calls for about 90% growth), sales are expected to expand slower than unit sales indicating the pricing could continue to be an issue.
China’s economic growth has been weak with GDP rising by just about 4.7% in the second calendar quarter of 2024, down from 5.3% in the first quarter, as the country faces a downturn in the real estate market and a slow rebound from stringent Covid-19 lockdowns that ended over a year ago. Moreover, consumer spending and domestic consumption also remain weak in China. Retail sales recently fell to an 18-month low due to deflation, as businesses have been cutting prices while employers have been reducing salaries with unemployment among the youth remaining high. The broader high interest rate environment is also hurting automotive companies in general by making financing costs higher.
Separately, entry into new international markets is also proving tricky due to mounting trade barriers. There have been tariff hikes in the European Union, which has accused Chinese EV makers of receiving unfair state subsidies, with additional duties expected to be up to 37.6%. The U.S. has imposed a 100% import duty on Chinese EVs into the country. This is viewed as a negative for Chinese EV players, as it could limit volume growth. Moreover, average selling prices for vehicles in developed markets such as the U.S. are higher.
Now, NIO 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?
Despite concerns about the economy and weakness in the global EV market, there are still some positives for Nio. 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 core brand vehicles which are typically priced upwards of RMB 300,000. Nio’s valuation is also attractive. The stock trades at under $4 per share, about 0.8x consensus 2024 revenues, which is not expensive considering that the company’s revenues are projected to grow by more than 20% this year and by over 35% next year. 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 and Xpeng.
| Returns | Aug 2024 MTD [1] |
2024 YTD [1] |
2017-24 Total [2] |
| NIO Return | -16% | -59% | -42% |
| S&P 500 Return | -2% | 14% | 143% |
| Trefis Reinforced Value Portfolio | 2% | 9% | 709% |
[1] Returns as of 8/15/2024
[2] Cumulative total returns since the end of 2016
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