Key points
- Nio increased deliveries, but losses were worse than expected and forecasts are weak.
- Analysts are still bullish on the stock, but are scaling back their targets.
- Short sellers are in the mix and unlikely to relent now that the guidelines have arrived.
- 5 stocks we like best from NIO
Nio Inc. NYSE: NIO The stock price has been trending steadily lower since the EV bubble burst, and is on track to hit new lows. The latest earnings data reveals the continued dominance of China’s electric vehicle market at the expense of investor value. The company is improving its margins but has not yet turned a profit and it may take some time before profitability is achieved. Price wars are putting pressure on margins. Increased competition in a saturated market doesn’t bode well for profits.
However, the news is not all bad. Analysts continue to see value in the electric vehicle company, even as they scale back their targets. Marketbeat tracks half a dozen reviews from the top ten analysts with current price targets. Over the past year they have lowered their rating to Hold and their price target by almost half, but a bottom is in sight for the market. The lower end of the range is just below the current action, aligning with a recent bottom in price action, and the range of new targets suggests fair value at current levels.
Nio lowers guidance, but analysts still expect accelerating growth
Nio lowered guidance for F2024 below analyst consensus targets because lower realized prices will offset volume growth, but the bottom line is still positive. The new guidance implies growth of about 27% this year, which is a solid amount, and the consensus forecast adds another 38% in F2025. Margin is also expected to improve, but losses will continue until 2025, contrary to projections issued last year, with no sure way of knowing when profits will be realized.
Risks to Nio’s outlook include a tilt towards low-price models. The company plans to add two low-cost mass-market brands with which to compete more effectively Tesla NASDAQ:TSLA AND Xpeng New York Stock Exchange: XPEV. Xpeng, meanwhile, is doing the same thing to better compete with Tesla, which is working hard to reduce costs. The move could increase market share and improve profitability, but also cannibalize Nio’s existing market in favor of cheaper, lower-margin vehicles.
Another risk is the US ban on microchips. This affects the availability of necessary materials in China and could impact sales later in the year. China has asked its automakers to source as much silicon as possible domestically and is investing billions in new technologies. Patrick Gelsinger by Intel NASDAQ: INTC China’s capabilities are estimated to be about ten years behind the global standard, so there is a lot of catching up to do.
There are two possible catalysts for Nio’s activity in 2024
Two possible catalysts for NIO’s business are a partnership with Contemporary Amperex Technology and plans to add 1,000 new battery swapping stations. Among Nio’s claims to fame is the ability to easily replace batteries. This capability allows for cheaper (non-battery) car sales and opens the door to recurring revenue streams. Owners can rent batteries and swap them at will. The company operates more than 2,200 stations in six countries, handling more than 60,000 trades per day. Another 45% more stations will increase availability and improve Nio’s appeal to consumers compared to other EV automakers.
The partnership with Contemporary Amperex Technology aims to improve battery life for its battery swapping system. The goal is to increase the relative value of Nio vehicles by improving lifespan in a world on the brink of battery warranty expiration.
Nio shares are falling, new lows are in sight
Nio stock is in a prolonged downtrend and may soon hit new lows. Short selling is an issue to watch out for. Nio shares were down about 10% before the release, and short interest is likely higher now. Without any bullish catalyst pushing the stock and profitability to move further into the future, short sellers will likely remain engaged in this trade and pressure the market for the foreseeable future.
Post-release action sees the market confirm resistance at the 30-day moving average and now set a new closing low. If the market continues this way, a new low could be reached within a few days. In this scenario, the market could quickly drop from $1.00 to $1.24 to reach $3.50.
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