Stock Market

Will Investors Warm Up to NIO Stock After This Chilly EV Winter?

Nio (NYSE:NIO) recently delivered solid 2023 delivery numbers and January performance. However, the market appears to remain relatively cold for this high-potential, high-risk Chinese EV maker. Geopolitical risks remain, and the fact that NIO stock is a U.S.-listed ADR provides its own set of headwinds.

That said, the company is growing, and growing fast. And concerns around China’s economic slowdown may be coming to a head, as China remains one of the most robust EV markets in the world.

So, is Nio a buy at current levels or not? Let’s dive in and try to answer this question.

Recent NIO News

Competitor Li Auto’s impressive earnings beat has helped Chinese EV producer NIO stock recover from a downturn. XPeng, BYD, and Tesla all took a piece for themselves from this achievement, with Tesla CEO Elon Musk complimenting the Chinese EV market. 

After plunging 12% the previous week because of worries about lithium demand and a downgrade by Wall Street, Li Auto shares shot up 18.8%. The S&P 500 dropped 0.38%, while the Nasdaq and Dow Jones decreased slightly. These losses were seen in the larger U.S. market.

Li Auto’s report showed a sizeable increase in Q4 diluted net earnings per American Depository Share. Net income surged 2000%, reaching $5.88 billion. It is a 136% increase from the past year and a 185% increase in total vehicle deliveries.

The CEO of Li Auto, Chairman Xiang Lim, spotlighted operational effectiveness and a 7.3% improvement in operating profit in just a year. He also claimed a 16.0% market share growth in CHina’s NEV market in Q4.

Nio investors may raise eyebrows about LI Auto’s impact on their NIO stock investment. Li Auto showing up is a challenge to Nio, a pure EV company going through a tough year and a J Morgan downgrade.

Fundamentals Are Deteriorating

While revenue nearly quadrupled in two years, Nio’s stock price fell 90%. This is normal throughout the expansion of production. Nio’s financial stability stays afloat thanks to its $6.2 billion cash reserves.

 Its profitability explains a lower price-to-sales ratio than rivals like Tesla, Rivian, and Lucid. On the other hand, the higher ratios of Lucid and Rivian seem unjustified because of the issues about their production and growth.

ET5 In China

The Ministry of Industry and Information Technology pulled the veil on the details of the Nio ET5’s 150 kWh battery. It is a semi-solid state battery from WeLion with a cell density of 360 Wh/kg. It even weighs 575 kg, 20 kilograms heavier than the 100 kWh battery.

Fun fact: in late 2023, a 150 kWh Nio ET7 battery with 3% capacity left could travel 1,044 kilometers. Despite several delays, Nio revealed the battery at Nio Day 2020, and deliveries are set for April 2024.

With a fresh battery, MIIT gives the thumbs up that the Nio ET5 has a CLTC range of 1055 km, slightly less than the ET5T’s 1010 km. Weight-wise, the sedan weighs 2,214 kg, and the wagon weighs 2,254 kg. The 150 kWh battery is only for short-term rental and longer trips; it is not cheap.

Proceed with Caution

It might be the “EV winter” with pressures from non-EV companies like Ford, but Nio stands its ground. It’s launching its extended-reach ET5 and may benefit from China’s market stabilization measure. Still, the short-term outlook for a vital rally is not looking good. Thus, I remain on the fence when it comes to this high-potential, higher-risk EV stock right now.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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