China's Nio (NIO) continues to see strong demand for its luxury electric SUVs, while innovating battery technology and growing its lineup of electric cars. Is Nio stock a buy right now?X
Founded in 2014, Nio had little experience in vehicle manufacturing when it came on the scene. But the EV startup promised a bright future. Its Chinese name, Weilai, means "blue sky coming." Nio does not make its own electric cars, instead partnering with a state-owned auto manufacturer.
Nio continues to grow EV sales after more than doubling them in 2020. It also came back from the brink of bankruptcy last year. But Nio faces rising competition from Chinese tech and auto giants, besides Tesla (TSLA), the global EV leader.
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.
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 an EPS Rating of 47 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.
In August, Nio's EV sales rose 48% year over year, but they fell 26% month over month. The pandemic in parts of China and Malaysia negatively affected the supply chain and, in turn, EV manufacturing, Nio said. Meanwhile, rival startups Li Auto (LI) and Xpeng (XPEV) outsold Nio in August.
For its fiscal second quarter, Nio delivered a narrower-than-expected loss. Nio lost 3 cents a share while revenue soared 145% to $1.31 billion.
Analysts expect Nio to pare losses to 50 cents per share in all of 2021 from 73 cents in 2020, according to FactSet. Revenue is seen surging 123% this year.
Amid stiff competition, Nio is speeding up new EV launches. It aims to deliver three new products in 2022. Those include the ET7, a premium electric sedan and Nio's most technologically advanced vehicle yet. It also plans a new mass-market brand.
Out of 20 analysts covering Nio stock, 17 rate it a buy, two have a hold and one has a sell, FactSet says.
Nio Stock Technical Analysis
U.S.-listed shares of Nio remain 47% below the January high of 66.99. Nio stock also remains under the 10-week and 40-week moving averages, with no buy point for now, according to MarketSmith chart analysis.
China's crackdown on data collection is weighing on Chinese stocks, including Nio. Increasingly "smart" electric vehicles will generate lots of data. New regulations on managing and securing automotive data, which take effect Oct. 1, require "in-vehicle processing" and "no collection by default" of data.
A fatal accident tied to the ES8 SUV's assisted-driving system also hit Nio stock, besides weak economic data out of China.
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 42 out of 99. The rating combines key fundamental and technical metrics in a single score. A 51 RS Rating means that Nio has outperformed just 51% of all stocks over the past year.
Nio's Accumulation/Distribution Rating of D reflects roughly moderate selling of shares by big investors over the past 13 weeks. Nio has decent institutional backing: 870 funds owned shares as of June, up from 815 in March. In fact, 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 cars. Its rivals include Li Auto (LI) and Xpeng (XPEV). Plus, Chinese auto giant Geely and tech giant Baidu (BIDU) plan to jointly build EVs. Apple (AAPL) supplier Foxconn also eyes the EV market. And Geely launched a new luxury EV brand, called Zeekr.
China's BYD (BYDFF) is making a luxury push with the Tang electric SUV and Han electric sedan. BYD, backed by Berkshire Hathaway (BKRB) chief Warren Buffett, is one of the world's biggest EV and battery makers.
Tesla, Ford (F) and Volkswagen (VWAGY) launched rivals to the EC6, Nio's popular electric crossover. Those included Tesla's Model Y, Ford's Mustang Mach-E and Volkswagen's ID.4, all locally made in China for Chinese consumers.
Nio is expanding capacity in China, while launching its first overseas sales in Europe. It's set to begin ES8 deliveries in Norway this month. The ET7 goes on sale in Norway and Germany in 2022. Peers BYD and Xpeng are in Norway as well, with Li Auto also planning to enter the European market. Chinese EV makers are challenging domestic counterparts, and 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.
China EV sales are expected to rise more than 30% to 1.8 million units in 2021, according to the China Association of Automobile Manufacturers. Globally, EV sales are expected to rise 70% in 2021, according to IHS Markit.
Growth drivers for Nio include new and upcoming EVs. The hotly anticipated ET7 arrives in the first quarter of 2022 in China, with European sales to follow.
Meanwhile, battery services are key to Nio's 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.
On July 9, Nio announced a vast expansion of battery swap stations and 2.9 million battery swaps, up from 1 million last October. Nio is taking battery swaps to Norway, further challenging Tesla.
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.
Its expanding vehicle lineup, entry into Europe and battery innovations mean more runway for growth. But the EV wars are heating up, as legacy auto and tech giants ramp up or get into the game. In the near term, the chip supply crunch is a headwind for Nio. Longer term, battery supplies could be an even bigger headache for EV stocks at large.
Nio stock remains in a bear market amid intensifying competition, the lingering auto chip shortage, and China's tech crackdown. Its RS line shows significant lag. Check back for updates on a new buy point.
Bottom line: Nio stock is not a buy right now.
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