Chinese language luxurious electrical automobile maker Nio stock (NYSE:NIO) delivered a complete of 20,176 automobiles for August, up nearly 4.4% versus the identical quarter final yr. Whereas Nio’s efficiency was effectively behind rival Li Auto (NASDAQ:LI) which noticed gross sales develop 38% year-over-year to 48,122 automobiles, it did a bit higher than Xpeng (NYSE:XPEV) which grew gross sales by nearly 2.5% year-over-year to 14,036 models. Though Nio has one of many wider mannequin lineups among the many rising EV gamers – with a complete of eight fashions on sale – the corporate’s deliveries have been slowing amid mounting competitors. Nio’s inventory value additionally stays down by practically 60% year-to-date.
China’s financial progress has been weak with GDP rising by nearly 4.7% within the second calendar quarter of 2024, down from 5.3% within the first quarter, because the nation faces a downturn in the true property market and a gradual rebound from stringent Covid-19 lockdowns that ended over a yr in the past. Furthermore, shopper spending and home consumption additionally stay weak in China. Retail gross sales just lately fell to an 18-month low because of deflation, as companies have been slicing costs whereas employers have been lowering salaries with unemployment among the many youth remaining excessive. The broader excessive rate of interest surroundings additionally hurts automotive firms by making financing prices larger.
Nio is trying to flip round its fortunes by doubling down on the decrease finish of the EV market. The corporate launched its sub-brand Onvo in Might, with the primary mannequin – the L60 – set to formally launch later this month. Nio has already opened 105 Onvo shops throughout 55 Chinese language cities to showcase the brand new mannequin which is priced at RMB 219,900 ($31,010) – greater than 10% cheaper than Tesla’s Mannequin Y. Whereas Nio’s flagship model targets the premium market which is priced at RMB 300,000 ($42,000) and above, Onvo is aimed on the mass market – masking the vary between RMB 200,000 ($28,000) and RMB 300,000 ($42,000). Nio can also be planning to maneuver additional downmarket with one other model known as Firefly, anticipated to debut by the top of this yr. Firefly’s first mannequin is anticipated to be a mix of a small SUV and a compact SUV. The evolving regulatory surroundings might additionally profit Nio’s lower-end push. China just lately launched new incentives of RMB 10,000 (roughly $1,410) for shoppers who swap from gasoline to electrical or low-emission automobiles, with studies suggesting this subsidy may very well be doubled to RMB 20,000 ($2,800) per automobile.
Notably, NIO inventory has underperformed the broader market in every of the final 4 years. Returns for the inventory had been -35% in 2021, -69% in 2022, and -7% in 2023. As compared, 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 distinction, the Trefis Excessive High quality (HQ) Portfolio, with a group of 30 shares, has outperformed the S&P 500 annually over the identical interval. Why is that? As a gaggle, HQ Portfolio shares offered higher returns with much less danger versus the benchmark index; much less of a roller-coaster experience as evident in HQ Portfolio efficiency metrics. Given the present unsure macroeconomic surroundings with excessive oil costs and elevated rates of interest, might NIO face an identical scenario because it did in 2021, 2022, and 2023 and underperform the S&P over the following 12 months – or will it see a restoration?
Nio’s valuation can also be engaging. The inventory trades at about $4 per share, about 0.8x consensus 2024 revenues, which isn’t costly contemplating that the corporate’s revenues are projected to develop by over 20% this yr and by over 35% subsequent yr. See our evaluation of Nio, Xpeng & Li Auto: How Do Chinese language EV Shares Examine? for an in depth have a look at how Nio inventory compares with its rivals Li and Xpeng.
| Returns | Sep 2024 MTD [1] |
2024 YTD [1] |
2017-24 Complete [2] |
| NIO Return | 0% | -57% | 42% |
| S&P 500 Return | 0% | 17% | 150% |
| Trefis Strengthened Worth Portfolio | 0% | 7% | 695% |
[1] Returns as of 9/2/2024
[2] Cumulative complete returns for the reason that finish of 2016
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The views and opinions expressed herein are the views and opinions of the writer and don’t essentially replicate these of Nasdaq, Inc.
