Nio Stock A Buy? Marquee New Electric Vehicles Are Coming In 2022
China's Nio (NIO) continues to see robust demand for its luxury electric SUVs, while growing its vehicle lineup and innovating EV batteries. But high-flying growth stocks are getting beat up. Is Nio stock a buy right now?
Last week, local sources reported that Nio confirmed that the ET7, its flagship sedan, was on track to launch in March. Nio also plans to launch the smaller ET5, a purported rival to the Tesla Model 3, in September.
"We expect Nio's marquee product developmental efforts to become reality in 2022, which in our view should help the stock recover," Deutsche Bank analyst Edison Yu said earlier in January.
Founded in 2014, Shanghai-based Nio knew little about vehicle manufacturing when it came on the scene. But the startup, sometimes called the Tesla of China due to its luxury designs, went on to deliver booming sales. Unlike Tesla (TSLA), Nio does not make its own electric cars, instead partnering with a state-owned auto manufacturer.
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 a weak EPS Rating of 45 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 is a combined measure of sales growth, profit margins and return on equity.
On Nov. 10, Nio delivered a less-than-feared loss for the third quarter. Nio lost 6 cents a share while revenue soared 117%. But the startup gave a weaker-than-expected Q4 revenue outlook, saying chip shortages and production challenges continue.
Analysts expect Nio to pare losses to 64 cents per share in 2021 from 73 cents in 2020, according to FactSet. Revenue is seen surging 125% for the full year.
In Q3, Nio doubled EV sales, but Chinese startup rivals Li Auto (LI) and Xpeng (XPEV) nearly tripled sales. In November and December, Nio's EV sales rebounded after plunging 27.5% in October. Chip-supply issues and the retooling of manufacturing lines for new EVs caused the October slowdown, the company said.
Amid stiff competition, Nio is speeding up new EV launches. It aims to deliver three new products in 2022. Those include the ET7, its first electric sedan and most high-tech vehicle yet.
Nio's ET7 will offer ultra-long range and highly autonomous driving. It is set to launch in China in Q1 2022 and by end of 2022 in Europe.
Out of 26 analysts covering Nio stock, 24 rate it a buy, two have a hold and no one has a sell, FactSet says.
Nio Stock Technical Analysis
U.S.-listed shares of Nio have more than halved from last January's high of 66.99. In fact, Nio stock has plunged to its lowest level since October 2020.
Nio and other U.S.-listed Chinese stocks tumbled last December on fears that they might get delisted from U.S. exchanges. In January, worries about rising inflation and interest rates have hit growth stocks at large, including Nio.
More broadly, Nio faces rising competition in the market for electric cars. Fellow China EV startups Li Auto (LI) and Xpeng (XPEV) are rising rivals to Nio, which has a higher valuation.
The relative strength line for Nio stock shows severe lag. It rallied sharply for most of 2020. 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 33 out of 99. The rating combines key fundamental and technical metrics in a single score. A 12 RS Rating means that Nio has outperformed just 12% of all stocks over the past year.
Nio's Accumulation/Distribution Rating of E reflects heavy selling by big investors over the past 13 weeks. As of December, 938 funds owned shares. NIO stock 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 SUVs and cars. Besides Tesla, Li Auto and Xpeng, its rivals there include Chinese giant BYD (BYDDF), whose EV and hybrid sales are booming.
Both Chinese and U.S. auto giants are pushing into that country's premium EV market as well. General Motors (GM), Ford (F) and Volkswagen (VWAGY) all sell electric SUVs in China, made locally for Chinese consumers.
Still, Nio continues to grow EV sales, after more than doubling them in 2020, and coming back from the brink of bankruptcy.
By 2030, fully electric and hybrid EVs will make up 90% of new car sales in China, Nio CEO William Li forecasts. That would be up from about 10% last March, suggesting ample room to grow.
Nio sells three premium electric SUVs, including the ES8, ES6 and EC6. The three new EVs for 2022 could include another SUV, in addition to the two electric sedans, according to Deutsche Bank analysts.
While expanding capacity in China, Nio is growing overseas. It sells the ES8 in Norway. It plans to sell the upcoming ET7 in Norway and Germany in 2022.
In 2022, the Shanghai-based carmaker expects to expand in Germany, the Netherlands, Sweden and Denmark. By 2025, Nio aims to be in 25 countries.
BYD and Xpeng are in Norway as well, with Li Auto also planning to enter Europe. Chinese EV makers are challenging Western automakers, including Tesla, on the continent.
Outlook For Nio, EV Stocks
On home turf, China's Nio, Li Auto and Xpeng are expanding to fend off Tesla.Globally, EV sales are expected to rise 70% in 2021, according to IHS Markit.
But the global semiconductor shortage could foreshadow an EV battery shortage, analysts say. The chip crisis hit Nio, as well as Tesla, Volkswagen (VWAGY), General Motors (GM) and Ford (F).
Growth drivers for Nio include new and upcoming EVs. Meanwhile, battery services are key to its business model.
Nio offers an innovative 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 can swap car batteries based on their needs.
In July, Nio announced a vast expansion of battery swap stations. It has now achieved 5.3 million battery swaps, up from 2.9 million in July. It's taken battery swaps to Norway, further challenging Tesla in one of its top global markets.
Is Nio Stock A Buy Now?
From a fundamental perspective, Nio's financial condition is improving after debt and liquidity fears slammed shares. It has significantly pared losses while delivering huge top-line gains.
An expanding vehicle lineup, entry into Europe and battery innovations mean more runway for growth. But the EV wars are heating up. In the near term, the chip supply crunch poses a headwind to Nio. Longer term, battery supplies could be an even bigger headache for EV stocks at large.
Nio stock is near year-plus lows and it has a lot of recovery work to do. It remains a promising and high-growth EV stock, so check back for updates.
