Trends That Can Drive Nio Stock Higher

Chinese luxury electric vehicle maker Nio stock (NYSE:NIO) reported deliveries of 20,976 vehicles for October, roughly flat versus September and up 30% year-over-year. Deliveries for the first 10 months of the year came in at 170,257 vehicles, up 35% versus last year. Nio’s delivery performance was better than rivals. For perspective,  Xpeng (NYSE:XPEV) delivered 23,917 vehicles for October, up 20% compared to last year. Xpeng’s total year-to-date sales for the first ten months of the year stood at about 122,500 units, a 21% increase from the same period last year. In comparison, Li Auto (NASDAQ:LI), the largest of the emerging EV players in China, delivered 51,443 vehicles in October 2024, up 27.3% year-over-year. So what has been driving growth for Nio and what are some of the trends that could drive the stock higher?

Notably, NIO stock has performed worse than the broader market in each of the last three years. Returns for the stock were -35% in 2021, -69% in 2022, and -7% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is less volatile. And it 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 around rate cuts and multiple wars, 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?

Nio’s valuation is attractive. The stock trades at about $5 per share, or about 1x consensus 2024 revenues, which is not expensive considering that revenues are projected to grow by over 20% this year and by over 35% next year. In comparison, Tesla trades at about 7x forward revenue, even though revenues are likely to remain almost flat this year. If Nio continues this pace of growth, investors could potentially re-rate the stock higher, assigning it a higher multiple of over 2x, more in line with its Chinese peer Xpeng. 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. There are several trends that could benefit Nio.

The Chinese government’s recent monetary stimulus measures could help to boost EV sales further in the coming quarters. Nio’s financial performance has also been strong. Despite facing pricing pressure from competitors like Tesla and Li Auto, which have been cutting prices, Nio’s margins have remained quite resilient. In Q2 2024, vehicle gross profit margins improved to 12.2%, up from 9.2% in Q1 and 6.2% in Q2 2023. This improvement was driven by higher delivery volumes and easing supply chain challenges, despite a 10% drop in average selling prices.  The Chinese EV market also continues to offer considerable growth opportunities. In October 2024, new energy vehicle (NEV) sales – which include EVs and plug-in hybrids – reached a record 1.4 million units, up 58% year-over-year and up 14% from September, per the China Passenger Car Association.  With Nio’s premium lineup and its new more value-oriented brands like Onvo and Firefly, the company is well-positioned to address a larger market. Incentives for EV purchases also remain quite attractive. China’s provinces have implemented car trade-in subsidy policies besides introducing other policies to promote automotive consumption. Under the scheme, consumers replacing an old gasoline vehicle with an NEV can receive up to 20,000 yuan (about $2,800). Such incentives can drive sales higher.

[1] Returns as of 11/5/2024
[2] Cumulative total returns since the end of 2016

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