NIO (NIO), a prominent Chinese electric vehicle manufacturer, remains a hot topic amongst investors and analysts alike, who see upside potential for the company. It has recently entered the mass market, launching its ONVO L60 SUV and scoring significant investment for its subsidiary, NIO China. Yet, NIO is grappling with challenges to achieve profitability despite its revenue growth and vehicle deliveries.
Further, Nio is currently navigating issues of cash burn and geopolitical risks, with profitability not expected before 2027. Further, the recent rebound in NIO’s stock may be due more to external forces like China’s economic stimulus package. Thanks in part to that run-up in price, the stock trades at a premium to industry peers. In time, if NIO can navigate its hurdles successfully, investors may be rewarded, but that day isn’t close at hand, making it a high-risk situation. Investors may want to hold off and look for a better entry point.
NIO Expands its Footprint While Raising Capital
NIO is an electric vehicle manufacturer based in China that produces smart electric SUVs and sedans. The company also provides various power solutions like home charging, battery swapping, mobile charging, and public charging network services. Moreover, NIO offers energy and service package provision, design and technology development, manufacture of e-powertrains, battery packs, components, and sales and after-sales management activities.
The company has reported a surge in vehicle deliveries for the third quarter of 2024. Specifically, the company achieved 21,181 vehicle deliveries in September, marking a substantial year-over-year increase of 35.4%. Additionally, the third quarter saw 61,855 vehicle deliveries, indicating an 11.6% rise from the previous year’s numbers and setting a new quarterly record. Most of September’s deliveries were under the umbrella of the premium NIO brand, while a smaller portion was attributed to the family-oriented ONVO, which started deliveries of its debut model, the L60, in late September. By the end of September, the company had a cumulative delivery total of 598,875 vehicles.
The company also announced a significant investment plan involving a subsidiary, the NIO Holding Co. Under the agreement, strategic investors, including Hefei Jianheng New Energy Automobile Investment Fund Partnership, Anhui Provincial Emerging Industry Investment Co., and CS Capital Co., will invest RMB3.3 billion in cash in exchange for newly issued shares of NIO China. The investment, which will be made in two phases by the end of 2024, supports NIO’s initiative to enhance its multi-brand strategy.
Analysis of NIO’s Recent Financial Results
During the second quarter of 2024, the company witnessed remarkable financial growth. Total revenues of RMB17,446.0 million (US$2,400.6 million) marked a 98.9% year-over-year surge and a 76.1% uptick from Q1 of 2024. This substantial growth is primarily attributable to an increase in vehicle sales, which reached RMB15,679.6 million ($2,157.6 million), up by 118.2% year-over-year and an impressive 87.1% from Q1 2024. Meanwhile, sales of parts, accessories, after-sales vehicle services, and power solutions generated RMB1,766.3 million ($243.1 million), a modest increase of 11.3% and 15.6% from Q2 2023 and Q1 2024, respectively.
Gross profit showed a staggering increase of 1,841.0% from Q2 2023 and a 246.3% increase from Q1 2024 at RMB1,688.7 million ($232.4 million). The gross margin also saw an upward trajectory, hitting 9.7%, a significant increase from Q2 2023’s 1.0% and Q1 2024’s 4.9%. However, the company posted a net loss of RMB5,046.0 million ($694.4 million), marking a decrease of 16.7% from Q2 2023 and 2.7% from Q1 2024.
Looking ahead to Q3 2024, management has projected vehicle deliveries to range between 61,000 and 63,000 units, an increase of around 10.0% to 13.7% compared to the same quarter in 2023. Total revenues are also expected to show an uptick, estimated between RMB19,109 million ($2,630 million) and RMB19,669 million ($2,707 million), an increase of about 0.2% to 3.2% compared to Q3 2023.
What Is the Price Target for NIO Stock?
The stock has been on an extended downward trajectory, shedding over 87% in the past three years. It trades near the middle of its 52-week price range of $3.61 – $9.57 and shows ongoing negative price momentum as it trades below the 20-day (5.83) and 50-day (5.43) moving averages. It trades at a relative premium, with a P/S ratio of 1.1x compared to the Auto Manufacturer industry average of 0.75x.
Analysts following the company have been constructive on the stock. For example, Citi analyst Jeff Chung recently reiterated a Buy rating and raised the price target on the shares from $7 to $8.90, noting the firm’s increased volume estimates through 2026 and the potential of Onvo to unlock further upside.
Nio is rated a Moderate Buy overall, based on 13 analysts’ recent recommendations. The average price target for NIO stock is $6.31, which represents a potential upside of 20.65% from current levels.
Final Thoughts on NIO
Chinese electric vehicle manufacturer NIO strives for profitability despite struggling with financial and geopolitical challenges. Its recent foray into the mass market has seen an impressive year-over-year increase in vehicle deliveries and secured significant investment into its subsidiary, NIO China. The company’s recent financial growth highlights the favorable impact of rising vehicle sales on overall revenues, although it’s important to note that it is still operating at a net loss.
The current stock price reflects a premium compared to industry peers, though the likelihood of profitability is a few years off. While there may be potential rewards on the horizon for investors, NIO represents a high-risk proposition in the short term, and potential investors may benefit from waiting for a more favorable entry point into the market.
