Electric vehicle maker NIO has been stuck in a range of around 10,000 monthly deliveries for nearly a year.
Courtesy of Nio
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Chinese electric vehicle manufacturer
NIO
offers a cautionary tale for
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investors. What happened to his actions could happen to
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it is
if the growth in volumes at
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follows a similar path to that of its Chinese rival.
NIO
(teleprinter:
NIO
) the stock has been on a steep decline lately, down around 30% so far this year. The shares are down about 60% from their 52-week high of over $55 in July and nearly 70% from their all-time high of nearly $67. All this despite a recent rebound. NIO shares, trading at around $23, bottomed out at under $12 in mid-May.
Stunned investors are probably wondering how it all went so wrong so quickly. There are candidates to blame. Fears over the US delisting of Chinese stocks resurfaced in 2022. In addition, inflation as well as Covid-19 have been issues. Yet NIO peers
XPeng
(XPEV) and
Li-Auto
(LI) faced the same issues, and the shares of these two electric vehicle makers held up better than the shares of NIO.
It’s hard to blame NIO management for all the underperformance. The company has never missed Wall Street sales estimates when releasing quarterly or annual figures. And NIO continues to introduce new models for Chinese EV buyers. The latest new NIO model is an SUV dubbed ES7.
The problem for the stock is simply unit growth. NIO has been stuck in a range of around 10,000 monthly deliveries for nearly a year. Growth investors find this unacceptable.
“NIO is a cautionary tale for Tesla and the entire electric vehicle industry,” said Wedbush analyst Dan Ives. Barrons. “It’s all about scale and scope of production, [which] finally became NIO’s albatross last year. The multiple was crushed as growth slowed significantly.
Ives does not cover NIO stocks, but he is a Tesla bull (TSLA), noting that stocks are bought. His price target is $1,000 per share.
In early 2021, shortly after NIO held an event for consumers and investors, shares traded around 18 times estimated 2021 sales. Tesla at the time was trading for around 16 times estimated sales . All multiples are down in the bear market, but NIO shares are now trading at around 4x estimated 2022 sales, a steep discount from the 8x multiple for Tesla shares.
Tesla’s multiple held up better as the company managed to maintain faster volume growth than NIO. Tesla opened new manufacturing facilities and expanded existing factories to keep shipments up quarter-over-quarter and year-over-year.
Tesla’s first-quarter 2022 deliveries were up about 68% from the same period a year ago. NIO deliveries increased by approximately 28%. And despite Covid-related production slowdowns, Tesla’s second-quarter shipments are expected to rise about 30% from last year. Second quarter NIO shipments are expected to approach 10%.
(Tesla has delivered over a million electric vehicles in the past 12 months. NIO has delivered about 128,000.)
The message for Tesla investors is easy to understand: focus on growing deliveries. Wall Street expects Tesla to deliver around 1.4 million vehicles in 2022, up from 936,000 deliveries in 2021. In 2023 and 2024, deliveries are expected to be around 2.1 million and 2.6 million, respectively. .
Tesla, by 2024, will likely be able to produce around 2.5 million vehicles from its existing manufacturing footprint, which includes plants in California, Texas and Germany as well as China. Also, it took Tesla about two years from the start of a factory to the cars rolling off the assembly line. Investors should probably be thinking about a new facility, or a significant expansion inside the existing footprint, around this time next year. If one isn’t on the way, Tesla stock could face an NIO-like problem.
NIO’s message for investors is just as simple to understand: reignite growth. NIO has increased its capacity in 2022. It hopes to reach between 40,000 and 50,000 units of quarterly production capacity in the second half of 2022. Supply chain issues could mask this potential. If NIO management manages to get unit shipments back up, investors should react with relief.
Write to Al Root at allen.root@dowjones.com
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