The Electric Vehicle (EV) industry has generated buzz since the Tesla (TSLA) Roadster first hit the streets in 2008. Since then, over 40 car companies have either introduced an EV to the market or announced plans to do so. One of those companies, NIO (NIO), was once called the “Tesla of China” as it became a prominent player in the EV market with a range of electric sedans and SUVs. However, continual cash burn, equity dilution, and a weak balance sheet have resulted in a 90% decline in the stock over the past three years. Now the company’s attempting to bounce back.
While the company has remained committed to pursuing growth, domestic price wars, international tariffs, and ongoing financial and technical struggles have presented significant headwinds and cast doubt on the stock’s rebound potential. Investors might want to watch this stock and revisit when the company can demonstrate sustainable growth.
NIO’s Removable Batteries Are a Key Differentiator
NIO is a leading manufacturer of smart electric vehicles (EVs) in China. NIO also provides a comprehensive suite of power solutions, such as Power Home, Power Swap, Power Charger and Destination Charger. The company has differentiated itself from its counterparts through its unique battery technology and accompanying services.
The company’s removable batteries set it apart in the heavily competitive EV market. This unique feature allows EV owners to replace depleted batteries with fully charged ones at charging stations, significantly reducing the charging time typically associated with EVs. Furthermore, NIO has leveraged this solution into a subscription model, creating a potentially substantial competitive advantage. This ambitious battery swap strategy, coupled with the battery-as-a-subscription service, positions NIO uniquely within the EV industry.
With a rebound in demand for EVs in China, management is optimistically targeting a robust recovery in the number of vehicles delivered in the next few quarters. However, it remains to be seen if this can provide further scale for the company’s battery advantage and catalyze profitability.
NIO’s Recent Financial Results & Outlook
The company recently reported results for Q1 2024. Revenue was $1,372.3 million, a 42.1% fall from Q4 2023 and a 7.2% year-over-year decrease. The decline was driven by a dip in vehicle deliveries, totaling 30,053, a 39.9% decline from the previous quarter, and a 3.2% year-over-year drop. However, gross profit showed remarkable growth, increasing 200.5% year-over-year to $67.6 million, despite a 61.9% drop from Q4 2023.
Gross margin was 4.9%, a 1.5% year-over-year improvement but below Q4 2023’s 7.5%. The loss from operations was $747.1 million, resulting in an earnings per share (EPS) of -$0.33.
The company reported cash and cash equivalents, restricted cash, short-term investment, and long-term time deposits of $6.3 billion at quarter’s end.
Following first quarter results, management has issued guidance for Q2 2024, projecting a year-over-year increase in vehicle deliveries of about 129.6% to 138.1% to 54,000 to 56,000 units. Total revenue projections range between $2,297 million and $2,373 million, an estimated increase of approximately 89.1% to 95.3% from the same period in 2023.
What Is the Price Target for NIO Stock?
The stock has continued its downward trajectory, shedding over 57% year-to-date. It trades at the bottom of its 52-week price range of $3.61 – $15.20 and continues to show negative price momentum, trading below its 20-day (4.42) and 50-day (4.60) moving averages. With a P/S ratio of 0.9x, the stock trades roughly in line with its Chinese counterparts but slightly above the Auto Manufacturers industry average of 0.7x.
Analysts following the company have been cautiously optimistic about the stock. For example, DBS analyst Rachel Miu recently reiterated a Buy rating on the shares with a price target of $7.10, noting projections of strong 2Q24 deliveries should provide some price support for the stock.
Overall, NIO is rated a Moderate Buy based on ten analysts’ recommendations and recently issued price targets. The average price target for NIO stock is $6.52, representing a potential 67.61% upside from current levels.
Bottom Line on NIO
NIO remains a key player in the electric vehicle (EV) industry, particularly in China. Its unique approach to battery technology and subscription service could offer a significant competitive advantage in the sector. While the company’s latest financial results may not inspire immediate confidence, there are indications of the rising tide of demand for EVs in China lifting NIO’s boat. However, investors may want to approach this stock cautiously, keeping a keen eye on the company’s ability to demonstrate sustained, profitable growth.
