XPEV - Navigating Nio's Road Ahead: Growth Challenges and Stock Predictions
2023-12-11 07:51:31 ET
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
Nio’s (NYSE: NIO ) delivery growth accelerated sharply in the third quarter, and the EV maker is taking multiple measures that should dramatically lower its costs over the longer term. Still, NIO stock looks poised to miss its 2023 delivery guidance, is not growing nearly as quickly as many of its peers, and continues to lack strong, positive catalysts.
Also noteworthy is that Nio will have to contend with tough competition and a meaningful slowing of the Chinese economy. Given these points, I expect NIO stock to advance going forward, but I predict several other Chinese EV stocks , including Li Auto (NASDAQ: LI ) and Xpeng (NASDAQ: XPEV ) will perform better than NIO’s shares.
Here are three points to consider for NIO stock.
Accelerating Growth and Cost-Cutting Measures
In the third quarter, Nio’s revenue jumped 46.6% compared to $2.6 billion a year earlier, while its EV deliveries soared 75% year-over-year to 55,432.
That compared very favorably with its Q2 results, when its revenue sank 14.8% YOY to $1.2 billion and its deliveries fell 6% YOY.
It is also noteworthy that Nio’s vehicle margin came in at 11% in Q3, way above the 6.2% vehicle margin it reported for Q2.
And its margins should improve further from now on, as it reportedly expects to spin off its battery manufacturing operation, which will likely require significant capital investments in the coming years. Moreover, the automaker is expected to soon carry out many additional layoffs after disclosing last month that it would dismiss 10% of its employees.
Finally, the company’s decision to buy the factory that makes its EVs should meaningfully boost its margins as we advance.
Tough Competition, No Strong Catalysts, and Relatively Weak Overall Growth
But Nio continues to face tough competition, as it has to battle well-known U.S. automakers that are highly regarded in China. Among the names in the latter category are Tesla (NASDAQ: TSLA ) and General Motors (NYSE: GM ). It also has to compete with Chinese EV makers Li Auto and BYD Company (OTC: BYDDF ), whose autos have proven to be much more popular than Nio’s offerings.
Moreover, as I’ve noted in past columns, Nio lacks the strong catalysts of many of its competitors. Specifically, Tesla, GM, BYD, and Li have very strong brand names and popularity within China. In contrast, Xpeng has market-leading ADAS offerings and an alliance with the giant European automaker Volkswagen (OTC: VWAGY ).
Meanwhile, Nio is growing meaningfully slower than its peers, as Seeking Alpha columnist Danil Sereda expects its vehicle deliveries to increase by 29% in 2023 and 52% in 2024.
Conversely, Xpeng’s deliveries soared 245% year-over-year in November and 292% YOY in October, suggesting it’s poised to expand much more quickly than Nio going forward. Similarly, Li’s deliveries jumped 173% YOY last month and climbed an incredible 300% YOY in October.
The Slowing of the Chinese Economy Will Hurt Nio, and Nio’s Valuation Is Not Cheap
Weighed down by high debt and weak exports, China’s economy is now expected to grow 5.2% this year, well below the 5.8% increase that economists, on average, had anticipated earlier in 2023. The country’s growth outlook is also well below the country’s pre-pandemic performance when its economy tended to expand at rates of about 7.5%. The slowdown will likely significantly hurt Nio, whose EVs are more expensive than those of its peers.
Finally, NIO stock is changing hands at a trailing price-sales ratio of 1.8, which is not especially low for an automaker.
On the date of publication, Larry Ramer held a long position in XPEV. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been PLUG, XOM and solar stocks. You can reach him on Stocktwits at @larryramer.
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