BYDDY - Nio's Perfect Storm: Weak Deliveries Price Wars and Analyst Downgrades Spell Disaster
2024-03-21 08:46:39 ET
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
The electric vehicle (EV) market slump continues to overwhelm EV producers worldwide. Nio (NYSE: NIO ) stock is one of the up-and-coming China-based EV startups that has been gravely affected by weaker demand in the burgeoning car market. Nio’s share price has fallen nearly 33% on a year-to-date perspective. As the company continues to falter, investors who are still holding the stock should really reconsider their judgement.
Below are three reasons why I believe NIO stock is still a strong sell.
Deliveries continue to underwhelm
The Chinese EV maker, NIO, has also experienced sluggish delivery growth in respective to its competitors. EV deliveries in 2023 came in at 160,038, up only 30% on a year-over-year basis. BYD (OTCMKTS: BYDDY ), NIO’s key competitor in China, saw a 62% surge in full year EV deliveries.
In January, Nio delivered 10,055 vehicles, which was a 44% decrease from December. Similarly, in February, the EV maker delivered 8,132 vehicles, down 19% from January.
Not to mention, China is still going through an economic recovery, and folks are feeling risk averse in terms of spending. This will affect all EV makers operating in China, but it will likely impact the smaller, lesser-known players the most.
EV market price war will undermine NIO’s growth
Slumping demand for new electric vehicles has resulted in another phenomenon: a price war. To cushion the slowdown in sales, Nio, BYD and other EV competitors have pursued price cuts in their expensive models. For example, BYD’s Yuan Plus SUV has a price tag of 119,800 yuan, approximately $16,642, which is nearly 12% less than where it was before. NIO stock also announced a host of price cuts last year. This price war will likely intensify, especially as the EV slump continues.
Price wars are likely to hurt smaller players than larger ones, making Nio particularly at risk.
Wall Street has given NIO numerous price target cuts
Wall Street has warmed up to Nio either. Despite many investment banks and brokerages largely maintaining a “Buy” rating for the Chinese EV maker’s shares, a number of Wall Street analysts have made downward adjustments to their price targets. For example, Morgan Stanley adjusted their price target from $13/share to $10/share. Jefferies has adjusted their price target from $8.30 to $5.90. Most notably, JPMorgan not only adjusted their price target downward but also issued a “Sell” rating for the stock due to heavy competition in the space.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines .
Tyrik Torres has been studying and participating in financial markets since he was in college, and he has particular passion for helping people understand complex systems. His areas of expertise are semiconductor and enterprise software equities. He has work experience in both investing (public and private markets) and investment banking.
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