Nio (NIO) continues to see strong demand for its luxury electric SUVs after an impressive 2020. But the global chip shortage and intense rivalries pose a headwind, as the Tesla of China expands in Europe. Is Nio stock a buy right now?
Founded in 2014, Nio had little experience in vehicle manufacturing when it came on the scene. But it promised a bright future. Its Chinese name, Weilai, means “blue sky coming.” Nio does not make its own electric cars. It partners with Jianghuai Automobile Group, a state-owned auto manufacturer in China, instead.
Last year, Nio more than doubled sales of luxury electric SUVs, coming back from the brink of bankruptcy. But it faces supply issues as well as rising competition from Chinese tech and auto giants, in addition to Tesla (TSLA).
Nio Earnings And Fundamental Analysis
On key earnings and other fundamental metrics, Nio lags. It’s a young and fast-growing company, still looking to turn a profit.
Nio stock earns an EPS Rating of 50 out of 99, and an SMR Rating of D, on a scale of A to a worst E. The EPS rating compares a company’s earnings growth vs. other companies. The SMR Rating measures sales growth, profit margins and return on equity.
In May, Nio’s EV sales leaped 95% year over year but fell almost 6% month over month, hurt by the global chip shortage. But the emerging Tesla of China sees sales rebounding in June and backed its forecast for 21,000-22,000 EV deliveries in the current second quarter.
Meanwhile, China’s EV sales soared 177% to 185,000 cars in May from a year earlier, according to data from China Passenger Car Association (CPCA). That far outpaced overall vehicle sales, which rose just 1.1% to 1.66 million cars, CPCA said.
On April 29, Nio delivered a wider-than-expected loss for the first quarter. Nio lost 48 cents a share as revenue swelled 529% to $1.22 billion. Quarter over quarter, Nio saw gross margins improve and it achieved positive cash flow from operations.
In Q1, Nio sold 20,060 electric SUVs, up 423% year over year.
Despite the surprise worsening of losses in Q1, they are seen narrowing this year.
Analysts expect Nio to pare losses to 65 cents per share in all of 2021 from 66 cents in 2020. Revenue is seen more than doubling to $5.19 billion in 2021, according to Zacks Investment Research. It’s expected to lose 15 cents per share in 2022 as revenue jumps 82%.
Six analysts on Wall Street rate Nio stock a buy, three have a hold and none has a sell, per Zacks.
On May 25, Bank of America analysts said they see order momentum picking up for Nio. They kept a buy rating on Nio stock on the expectation for robust sales, expanding margins and new launches.
Nio Stock Technical Analysis
After a failed breakout and selloff earlier this year, shares have come well off a May 31 low of 30.71 and are back above the 50-day moving average, according to MarketSmith chart analysis.
Nio stock has taken out the April high of 43.22, and that could be seen as a base within a larger pattern. But with the EV stock still 34% below its 52-week high of 66.99, set in January, it’s too early to call a new entry.
The 50-day line is turning up again, and the relative strength line for Nio stock is improving from a recent decline. A rising RS line means that a stock is outperforming the S&P 500 index. It is the blue line in the chart shown.
Shares earn a lackluster IBD Composite Rating of 54 out of 99. The rating combines key fundamental and technical metrics in a single score. But a near-perfect 98 RS Rating means that Nio’s performance has been in the top 2% of all stocks over the past year. It well exceeds the 80 or higher that investors in top growth stocks would want to see.
Nio’s Accumulation/Distribution Rating of C reflects roughly equal buying and selling by big investors over the past 13 weeks. Nio has decent institutional backing: 811 funds owned shares as of March. In fact, Nio shows eight quarters of rising fund ownership, according to the IBD Stock Checkup tool.
China EV Competition Grows
Nio targets China’s luxury market for electric cars. Its rivals include Li Auto (LI) and Xpeng (XPEV). Plus, Chinese auto giant Geely and tech giant Baidu (BIDU) plan to jointly build EVs. Apple (AAPL) supplier Foxconn also eyes the EV market. Geely just launched a new luxury EV brand, called Zeekr.
Tesla, Ford (F) and Volkswagen (VWAGY) launched rivals to the EC6, Nio’s popular new electric crossover. Those EV rivals include Tesla’s Model Y, Volkswagen’s ID.4 and Ford’s Mustang Mach-E, all locally made in China for Chinese consumers.
Nio is expanding capacity in China, while gearing to launch its first overseas sales in Europe this fall. It will debut in Norway — a stronghold for Tesla — with the ES8, a luxury electric SUV.
On June 7, Nio revealed that “Gemini” is the code name for a new brand of luxury electric cars. That seemed to dash speculation about Nio’s entry into the mass-market, affordable EV segment.
Outlook For Nio, EV Stocks
China’s Nio, Li Auto and Xpeng are expanding operations to fend off Tesla on their home turf.
Nio seeks to increase monthly EV production to 10,000 units in the second half of 2021. It expects to reach 150,000 units per year by the first quarter of 2022. Currently, it’s limited to 7,500 units per month due to the chip shortage and robust demand for its new, longer-range batteries.
Helped by compelling new launches, China EV sales are expected to rise more than 30% to 1.8 million units in 2021, according to the China Association of Automobile Manufacturers. Globally, EV sales are expected to rise 70% in 2021, according to IHS Markit.
Both Nio and Li Auto expect to more than double EV deliveries in the current quarter. This despite Nio shutting down production at a factory for five days in March and April due to the chip shortage. Meanwhile, Xpeng sees Q2 deliveries up nearly 400%.
In 2021, Deutsche Bank analysts expect 95,000 Nio EV deliveries, up from 43,728 in 2020 but down from an earlier view for 100,000, amid the semiconductor shortage.
Nio’s not alone. The chip shortage hit Tesla, Volkswagen (VWAGY), General Motors (GM) and Ford (F) as well. After constrained chip supplies, battery supplies could become the next challenge for automakers as the EV market grows, according to Morgan Stanley.
Growth drivers for Nio include new and upcoming EVs, such as the EC6 and the ET7. The ET7, an electric sedan, could be the first EV to offer a solid-state battery — and 600 miles of range. Meanwhile, Nio’s putting battery-swapping technology at the heart of its business model.
In 2020, Nio launched a subscription plan for batteries. Basically, the car and the battery are sold separately. Users can buy Nio EVs without batteries for a lower price and “rent” batteries for a monthly fee. They also have an option to swap car batteries depending on their needs. Nio took ownership of XPT, which makes battery packs and electric motors, last year.
Eventually, Nio expects to generate recurring revenue from its highly autonomous driving system. Tesla and Xpeng already do that.
Is Nio Stock A Buy Now?
From a fundamental perspective, Nio’s financial condition is improving after debt and liquidity fears slammed shares. Nio is paring losses while delivering huge top-line growth in China.
Nio’s international expansion promises more runway for growth. In addition, it is innovating battery technology.
But the EV wars are heating up, as legacy auto and tech giants ramp up or get into the game. In the near term, the chip supply crunch is a headwind for automakers. Longer term, battery supplies could be even bigger headwind for EV stocks at large.
Nio has made a significant move above the April high of 43.22 as well as the 50-day line. The China EV stock could be basing. But it’s still well off January highs, so check back for updates on a new buy point.
Bottom line: Nio stock is not a buy right now.
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