Is Nio Stock A Buy As Flagship New EV Looms?


China’s Nio (NIO) continues to see robust demand for its luxury electric SUVs, while growing its lineup of electric cars and innovating EV batteries. But chip woes linger. Is Nio stock a buy right now?




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At the Nio Day on Dec. 18, the EV startup could show off a cheaper, entry-level ET5 electric sedan. It could also reveal a new, mass-market brand. Deutsche Bank analyst Edison Yu considers the upcoming event a catalyst for NIO stock.

Founded in 2014, Nio had little experience in vehicle manufacturing when it came on the scene. But the EV startup, sometimes called the Tesla of China, 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)

Nio stock earns an 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 measures 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 weaker-than-expected Q4 revenue outlook, as chip shortages and production challenges continue.

Analysts expect Nio to pare losses to 66 cents per share for all of 2021 from 73 cents in 2020, according to FactSet. Revenue is seen surging 123% this year.

In Q3, Nio doubled EV sales, but Chinese startup rivals Li Auto (LI) and Xpeng (XPEV) nearly tripled sales. In October, Nio’s EV sales plunged 27.5% while Li Auto and Xpeng continued to see triple-digit, year-over-year growth. Chip-supply issues and manufacturing upgrades ahead of new EVs in 2022 weighed on sales, Nio 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. The ET7, unveiled at the 2020 Nio Day, is set to offer more than 600 miles of battery range, as well as highly autonomous driving.

Its launch is set for Q1 2022 in China and by end of 2022 in Europe.


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Nio Stock Technical Analysis

U.S.-listed shares of Nio remain far below the January high of 66.99. Nio stock plunged to a 13-month low on Dec. 6, though it has bounced back somewhat. Shares are still below their 50-day and 200-day moving averages. Nio stock currently has no buy point.

Nio and other U.S.-listed Chinese stocks tumbled in early December on delisting fears. Both Beijing and Washington have made moves suggesting they could force Chinese companies off U.S. exchanges. Nio is looking to list in Hong Kong.

More broadly, Nio faces rising competition in the market for electric cars. Fellow China EV startups Li Auto (LI) and Xpeng (XPEV) are outselling Nio, which has a much-higher valuation.

The relative strength line for Nio stock is lagging. 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 46 out of 99. The rating combines key fundamental and technical metrics in a single score. A 20 RS Rating means that Nio has outperformed just 23% of all stocks over the past year.

Nio’s Accumulation/Distribution Rating of D- reflects selling by big investors over the past 13 weeks. As of September, 869 funds owned shares. NIO stock shows zero quarters of rising fund ownership, according to the IBD Stock Checkup tool.


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China EV Competition Grows

Nio targets China’s luxury market for cars. Besides Tesla (TSLA), its rivals there include fellow startups Li Auto and Xpeng and industry giant BYD (BYDDF), whose EV and hybrid sales have nearly tripled in the past six months.

Chinese and U.S. auto giants are pushing into the luxury EV market as well. Those companies include Geely.

In the past year, General Motors (GM), Ford (F) and Volkswagen (VWAGY) all launched 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% in March, suggesting ample room to grow.

Nio plans three new EVs in 2022, including the ET7, its first electric sedan. The hot Chinese startup already makes three premium electric SUVs, including the ES8, ES6 and EC6.

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. Chinese peers 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.


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Outlook For Nio, EV Stocks

On home turf, China’s Nio, Li Auto and Xpeng are expanding to fend off Tesla.

Nio SUV
Nio currently sells the ES8 and ES6 electric SUVs, and a new EC6 electric crossover. (Johnnie Rik/shutterstock.com)

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 and 2.9 million battery swaps, up from 1 million last October. It’s taken battery swaps to Norway, further challenging Tesla.


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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 a 52-week low and does not have a current buy point. But it’s a promising and high-growth EV stock, so check back for updates.

Bottom line: Nio stock is not a buy right now.

To find the best stocks to buy or watch, check out IBD Stock Lists and other IBD research.

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