Chinese language luxurious electrical automobile maker Nio stock (NYSE:NIO) has seen a powerful rally in current weeks, rising by about 45% since late August, roughly in step with its friends Xpeng (NYSE:XPEV) and Li Auto (NASDAQ:LI). Whereas broader market components, such because the Chinese language authorities’s current financial stimulus measures, have performed a task within the current rally, a number of components particular to Nio have additionally contributed. We consider the inventory may have significant upside, doubtlessly rising 2x from present ranges.
Nio reported a comparatively sturdy efficiency for September, with deliveries rising 35% year-over-year to 21,181 models. Though this development was behind rivals like Xpeng, which delivered 21,352 autos (up 39.5% year-on-year), and Li Auto, which led with 53,709 deliveries, Nio has maintained a comparatively constant observe file this yr. The corporate has posted 5 consecutive months of over 20,000 automobile deliveries, displaying regular demand regardless of mounting competitors.
One other key improvement for Nio has been the introduction of its extra reasonably priced sub-brand, Onvo, which started deliveries in September with 832 models offered. The Onvo L60, priced between RMB 200,000 ($28,000) and RMB 300,000 ($42,000), is predicted to drive greater gross sales within the mass market as manufacturing scales up. Nio can also be getting ready to launch one other model known as Firefly by the tip of the yr. Firefly’s first mannequin, which can be a mixture of small and compact SUV designs, will probably goal even cheaper price factors, increasing Nio’s presence additional downmarket. The Chinese language EV market continues to supply appreciable development alternatives. In September 2024, new power automobile (NEV) gross sales reached a file 1.3 million models, accounting for 46% of the two.81 million autos offered within the nation. This means a powerful marketplace for EVs, and with Nio’s premium lineup and extra value-oriented manufacturers like Onvo and Firefly, the corporate is well-positioned to deal with a bigger market.
Regardless of going through pricing strain from rivals like Tesla and Li Auto, which have been reducing costs, Nio’s margins have remained fairly resilient. In Q2 2024, automobile gross revenue margins improved to 12.2%, up from 9.2% in Q1 and 6.2% in Q2 2023. This enchancment was pushed by greater supply volumes and easing provide chain challenges, regardless of a ten% drop in common promoting costs. Nio’s whole income nearly doubled year-over-year to $2.4 billion through the earlier quarter, whereas internet losses narrowed to $0.30 per share from $0.45 per share a yr in the past.
Notably, NIO inventory has carried out worse than the broader market in every of the final three years. Returns for the inventory had been -35% in 2021, -69% in 2022, and -7% in 2023. In distinction, the Trefis Excessive High quality (HQ) Portfolio, with a set of 30 shares, is much less risky. And it has outperformed the S&P 500 every year over the identical interval. Why is that? As a gaggle, HQ Portfolio shares supplied higher returns with much less threat versus the benchmark index; much less of a roller-coaster trip as evident in HQ Portfolio efficiency metrics. Given the present unsure macroeconomic surroundings round price cuts and a number of wars, may 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 is engaging. The inventory trades at about $5 per share, about 1x consensus 2024 revenues, which isn’t costly contemplating that revenues are projected to develop by over 20% this yr and by over 35% subsequent yr. As compared, Tesla trades at about 7x ahead income, regardless of the very fact the revenues are prone to stay nearly flat this yr. If Nio buyers worth that inventory a bit extra generously, at about 2x ahead earnings, led by its stronger development and enhancing margins, the inventory may see a substantial upside. See our evaluation of Nio, Xpeng & Li Auto: How Do Chinese language EV Shares Examine? for an in depth take a look at how Nio inventory compares with its rivals Li and Xpeng.
| Returns | Oct 2024 MTD [1] |
2024 YTD [1] |
2017-24 Whole [2] |
| NIO Return | -21% | -42% | -18% |
| S&P 500 Return | 1% | 22% | 161% |
| Trefis Strengthened Worth Portfolio | 3% | 18% | 789% |
[1] Returns as of 10/20/2024
[2] Cumulative whole returns because the finish of 2016
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The views and opinions expressed herein are the views and opinions of the creator and don’t essentially replicate these of Nasdaq, Inc.
