Nio (NIO) stock has pulled back since I last covered it at the end of September. That’s largely because China’s economic stimulus hasn’t been as strong as expected, once again elevating concerns about the electric vehicle company’s trajectory. Despite improving deliveries in recent months, notably due to the Onvo brand, I remain neutral on the Chinese firm, as it is forecasted to continue losing money throughout the medium term.
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Volatility in Nio stock
Despite some international reach, Nio remains dependent on the Chinese market, and as such, Chinese stimulus measures have significantly impacted Nio stock in recent months, contributing to its volatility.
Like the stocks of many of its peers, Nio shares surged in September after Beijing announced a raft of economic stimulus initiatives, including interest rate reductions and lowered reserve requirements for banks.
The stimulus measures aimed at reviving China’s economy were particularly favorable for New Energy Vehicle (NEV) companies like Nio, as they enhanced consumers’ purchasing power and made it easier for them to afford big-ticket items like electric vehicles (EVs). The creation of an RMB800 billion lending pool targeting China’s capital markets also supported optimism around Chinese equities, including Nio.
However, the initial enthusiasm was tempered when the Chinese government’s financial stimulus measures, announced in early October, were less extensive than expected. This is the primary reason for the pullback in shares since I last covered the stock.
For context, the volatility has been substantial. Nio’s stock gained about 65% in September alone, outperforming the broader market.
Nio’s Recent Performance Reflects Improvement
Nio’s bull run was supported by strong delivery data. The EV maker delivered 21,181 vehicles in September, marking a 35.4% year-over-year increase and the second-highest monthly delivery record for the company. This performance included 20,349 vehicles from the main Nio brand and 832 from the newly launched Onvo sub-brand.
This meant that Nio’s third-quarter deliveries reached a record high of 61,855 vehicles, up 11.6% year-over-year, falling within the company’s guidance range of 61,000 to 63,000 vehicles. However, some observers might suggest that the 11.6% growth is somewhat disappointing, given the buzz around EV stocks.
It’s perhaps even more disappointing, given that, according to the China Association of Automobile Manufacturers, NEV sales in China increased 42.3% year-over-year to a record 1,287,000 units in September. Domestic NEV sales, excluding exports, reached 1,176,000 units, up 45.5% year-over-year.
Can’t Overlook Nio’s Challenges
Moreover, it’s worth noting that despite some delivery improvement, Nio’s bottom-line performance has barely improved. The company reported a net loss of $705.4 million in Q2 2024, as costs continued to rise alongside revenues. This persistent cash burn is evident in the decrease in Nio’s cash reserves from $5.32 billion in Q1 to $4.99 billion in Q2 2024 and points to a relatively short runway when cash injections are excluded.
Nio’s reliance on constant liquidity injections from outside investors has led to significant share dilution, with outstanding shares increasing from 1.6 billion in Q2 2023 to 2.05 billion in Q2 2024.
In addition to this, the ongoing EV price war in China is putting additional pressure on margins, making it harder for Nio to reach profitability. It hasn’t been able to achieve and sustain the type of margins that peers, including Li Auto, have.
Geopolitical challenges are hindering expansion into international markets, particularly the U.S. and Europe, where tariffs and regulatory obstacles present significant barriers. NIO’s limited sales in the EU, with only 423 and 406 EVs sold in Q2 and Q3 2024, respectively, highlight these difficulties.
Nio’s Forecasts Aren’t Great
Nio isn’t expected to turn a profit until at least 2027. More than 15 analysts forecast continued losses in 2024, 2025, and 2026. However, there is just one analyst covering the stock as far as 2027, and that one analyst has forecasted earnings per share (EPS) of $0.23, meaning a forward price-to-earnings (P/E) ratio of 22x.
In other words, Nio is expected to continue losing money for the foreseeable future and the path toward profitability isn’t clear. The company’s new Onvo brand, which appears to be registering some success, could allow these forecasts to become more optimistic – time will tell.
Is Nio Stock a Buy, According to Analysts?
As shown on TipRanks, NIO comes in as a Moderate Buy based on eight Buys, four Holds, and one Sell rating assigned by Wall Street analysts in the past three months. However, due to the recent movement in NIO stock, the average NIO stock price target of $6.31 is nearly 23% higher than the current trading price.
The Bottom Line on Nio Stock
Over the past month, Nio stock has displayed the type of volatility that many traders dream of. However, as a long-run investor, I’m concerned about the company’s fundamentals. While Nio stock is trading below its share price target, the all-important road to profitability is unclear, with only one analyst pointing to profitability being achieved in 2027.
