NIO: Don't Let Q4 2022 Scare You Off

Seeking Alpha2023-03-06

SummaryWe continue to be bullish on NIO stock, despite the 4Q22 loss and guidance for 1Q23.We believe NIO has a unique position within the EV market and BaaS space, and expect the company to ...

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Comments

Sigit waloyo
2023-03-07
Sigit waloyo
Good morning
Tradehouz
2023-03-06
Tradehouz
As much I like NIO a lot, this article uses the word "believe" while there aren't too many mention about strategies of NIO to overcome their challenge in the terms price competition, deterioting margin and how NIO can be more efficient. What's presented in the article has been mentioned widely already after the earning call...the article would be more worthy to read if it can provide more insight rather than just the numbers that is available publically.
- Fahmi R:
  nice
- walleye:
  great
- Huradelia:
  Done
- yingchee:
  Read
- csk9969:
  👍

Leave a comment

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The company’s 4Q22 earnings report and guidance for 1Q23 left investors uneasy, and for good reason. While the company reported a 60.2% Y/Y increase in vehicle sales, its vehicle margin was down significantly, from 20.9% in 4Q21 to6.8% in its latest quarter. Still, we continue to believe NIO is a growth stock and expect it to recover meaningfully in FY2023. We believe NIO retains a unique position within the EV market as the Chinese Tesla, expanding its EV offerings and battery swap stations. We see NIO outperforming in the mid-to-long term and recommend investors buy the pullback.The company had a rough 2022 with the economic slowdown in China, the weaker spending environment, and heightened costs of batteries. We believe NIO’s latest quarter was achieved during a difficult macro backdrop with Tesla (TSLA) cutting prices in China and macro headwinds pressuring battery prices and consumer spending. We recentlyon NIO with the bullish thesis that the company is well-positioned to beat its deliveries of last year and boost top-line growth. Our current note analyzes how our thesis played out and what to expect next for NIO stock. While NIO reported increased sequential and Y/Y sales, it missed the top and bottom lines. To top it off, the company's guidance for next quarter doesn’t inspire much confidence; NIO expects total revenue to be between $1,584M to $1,674M in 1Q23 versus the $2.78B consensus. While the stock remains volatile in the near term, we expect NIO to outperform in the mid-to-long term as we see NIO rebounding in FY2023. We recommend long-term investors begin looking for entry points into the stock at current levels.4Q22 and what to expect nextNIO’s 4Q22 earning results were worse than expected, but we don’t believe this is a reason to fear the stock. NIO’s press release early this month reported an EPS miss of $0.21 and a revenue miss of $230M despite revenue growing 62.2% Y/Y. Vehicle sales were up 60.2% Y/Y and 23.7% sequentially, amounting to $2,139.9M. The concerns around NIO come from the company’s margins, with vehicle margins down to 6.8% in the fourth quarter of 2022 from 20.9% a year ago and 16.4% a quarter earlier. We’re not too concerned about the decline in margins, as we believe NIO’s fundamental business is still intact, and the declines are part of broader macroeconomic headwinds pressuring the Chinese EV market. Competitors Li Auto (LI) and XPeng (XPEVThe following table outlines NIO’s key financial results for 4Q22:4Q22 Earnings reportWe’re also not too concerned about NIO stock in the mid-to-long run; unlike the NIO bears, we don’t believe the best days are behind the company. Instead, we believe NIO is in recovery mode. We believe NIO will experience increased demand for its EV offerings as it ramps up production of its fastest-selling products, ET5 and ET7. The EV market is expected to grow at a CAGR of 23.1% between 2022-2030, and we expect NIO to be a primary benefactor of the growth opportunities in the market. We believe NIO is well-positioned within the Chinese EV market, which accounted for 59% of global EV sales in 2022. We also believe NIO’s Battery-as-a-Service (BaaS) Power Swapping Stations in Europe have yet to reflect returns on earnings, and we expect demand tailwinds from NIO’s PSS expansion to take place in late FY2023. We believe NIO is well-positioned to grow in the mid-to-long run and recommend investors buy the pullback.To outlive temporary headwindsWe believe the company’s disappointing 4Q22 earnings results are due to temporary headwinds, which we expect to fade through FY2023. We believe the depressed margins are due to the challenging market environment NIO operated in over the last quarter, with a still-not-fully reopened China and Tesla’s surprise price cuts. While there may be some near-term downside to work through, we expect the stock to outperform in the mid-to-long run. We expect near-term downside on two fronts: rising battery costs pressuring margins, and an increasingly competitive EV market. BloombergNEF’s annual lithium-ion battery price survey reported a 7% surge in average pack prices in 2022 after a steady drop in battery prices over the past several years. In 4Q22, NIO’s cost of sales was up 88.3% Y/Y in 4Q22 and 37.1% sequentially, with the company citing “higher battery cost per vehicle,” among other reasons. The following graph outlines battery prices since 2010.BloombergNEFWe also believe NIO’s earnings results were pressured by limited pricing power and increased competition in the EV market as Tesla cut prices of its two Model 3 and Model Y vehicles by up to13%. We’re not too surprised by NIO’s earnings as we understand the drivers behind the margin declines and expect the headwinds to be temporary.Our last note on NIO delved into what we believe are NIO’s two growth catalysts in FY2023: China’s reopening and its diversification of revenue streams abroad into Europe. After the company’s latest quarter, we believe NIO’s growth drivers might take longer than expected to materialize fully. We believe NIO needs time, and hence, we channel our bullish sentiment to long-term investors who we believe will be well-rewarded for entering the stock at current levels. NIO stock, currently trading at $9, is closing in on its 52-week-low of $8.31, and while some may be fearful of the pullback, we recommend investors take advantage of it. We believe NIO is one of the better-positioned Chinese stocks to grow more meaningfully in FY2023 and believe the stock is more resilient than it's getting credit for.Valuation and Word on Wall StreetWe believe NIO is relatively cheap, trading at 2.03x EV/C2023 Sales versus the peer group average of 2.3x. While the stock price is volatile in the near term, we believe the company provides a favorable risk-reward profile in the mid-to-long run and recommend investors strategically buy the pullback.Wall Street shares our bullish sentiment on the stock. Of the 31 analysts covering the stock, 23 are buy-rated, and the remaining are hold-rated. The stock is currently priced at $9 per share. The sell-side median price target is $16 while the mean is $17, with a potential 79-87% upside.The following tables outline NIO’s sell-side ratings and price targets.TechStockProsWhat to do with the stockWe’re still bullish on NIO. While the company’s 4Q22 earnings results reported a widening loss causing the stock to drop 6% in extended trading, we believe the market has overreacted to NIO’s results and guidance for FY2023. We expect NIO’s core business is still intact and growing, with deliveries up, signifying strong demand even amid rough macroeconomic conditions. We believe the company is well-positioned to rebound in the mid-to-long term as it expands its EV offerings and invests in its BaaS presence abroad. We recommend investors begin looking for entry points at current levels.This article is written by Tech Stock Pros for reference only. Please note the risks.","kind":"news","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":9940472102,"gmtCreate":1678149525307,"gmtModify":1678149528786,"author":{"id":"4106663006772770","authorId":"4106663006772770","name":"Sigit waloyo","avatar":"https://static.itradeup.com/news/793d6f1c1bc32e2f7cdb8ef7a8931a1c","vip":1,"crmLevel":1,"crmLevelSwitch":1,"idStr":"4106663006772770","authorIdStr":"4106663006772770"},"htmlText":"Good morning","listText":"Good morning","text":"Good morning","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9940472102","repostId":1156708685,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9940432227,"gmtCreate":1678102594370,"gmtModify":1678102600154,"author":{"id":"3576121469897058","authorId":"3576121469897058","name":"Tradehouz","avatar":"https://static.tigerbbs.com/6f757fab5871d925599d5d6bc71a9439","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3576121469897058","authorIdStr":"3576121469897058"},"htmlText":"As much I like NIO a lot, this article uses the word \"believe\" while there aren't too many mention about strategies of NIO to overcome their challenge in the terms price competition, deterioting margin and how NIO can be more efficient. What's presented in the article has been mentioned widely already after the earning call...the article would be more worthy to read if it can provide more insight rather than just the numbers that is available publically.","listText":"As much I like NIO a lot, this article uses the word \"believe\" while there aren't too many mention about strategies of NIO to overcome their challenge in the terms price competition, deterioting margin and how NIO can be more efficient. What's presented in the article has been mentioned widely already after the earning call...the article would be more worthy to read if it can provide more insight rather than just the numbers that is available publically.","text":"As much I like NIO a lot, this article uses the word \"believe\" while there aren't too many mention about strategies of NIO to overcome their challenge in the terms price competition, deterioting margin and how NIO can be more efficient. What's presented in the article has been mentioned widely already after the earning call...the article would be more worthy to read if it can provide more insight rather than just the numbers that is available publically.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":11,"commentSize":9,"repostSize":0,"link":"https://ttm.financial/post/9940432227","repostId":1156708685,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":105962621,"gmtCreate":1678103031680,"gmtModify":1678103034820,"authorId":4116421948148902,"author":{"id":4116421948148902,"idStr":"4116421948148902","authorId":4116421948148902,"name":"Fahmi R","avatar":"https://community-static.tradeup.com/news/d8190097a435718ddf39bcc147c87708","vip":1,"crmLevel":1,"crmLevelSwitch":1,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":9940432227,"type":1,"supId":0,"prevId":0,"content":"<u>nice</u>","text":"<u>nice</u>","html":"<u>nice</u>"},{"id":105962617,"gmtCreate":1678102928960,"gmtModify":1678102975727,"authorId":4141204753270552,"author":{"id":4141204753270552,"idStr":"4141204753270552","authorId":4141204753270552,"name":"walleye","avatar":"https://community-static.tradeup.com/news/default-avatar.jpg","vip":1,"crmLevel":1,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":9940432227,"type":1,"supId":0,"prevId":0,"content":"<u>great</u>","text":"<u>great</u>","html":"<u>great</u>"},{"id":105962615,"gmtCreate":1678102918483,"gmtModify":1678102922137,"authorId":3550593849162338,"author":{"id":3550593849162338,"idStr":"3550593849162338","authorId":3550593849162338,"name":"Huradelia","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"currentWearingBadge":{"badgeId":"4e86300037264823b9bb00ff44fc0f19-4","templateUuid":"4e86300037264823b9bb00ff44fc0f19","name":"Live trading challenger","description":"for 8 months","bigImgUrl":"https://community-static.tradeup.com/news/e3c2981d338af1955c5a7587297c7538","smallImgUrl":"https://community-static.tradeup.com/news/11bbd9850f6167705ec224d6cdf66df2","grayImgUrl":"https://community-static.tradeup.com/news/1c641e842de95b902f6af107359ee244","redirectLinkEnabled":0,"redirectLink":"https://www.tigerbrokers.com.sg/activity/market/2023/stock-contest?adcode=StockContest2023","hasAllocated":1,"isWearing":1,"stampPosition":0,"hasStamp":0,"allocationCount":1,"allocatedDate":"2024.05.03","individualDisplayEnabled":0,"individualDisplaySort":0,"categoryType":5600},"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":9940432227,"type":1,"supId":0,"prevId":0,"content":"<span class=\"s1\">Done</span>","text":"<span class=\"s1\">Done</span>","html":"<span class=\"s1\">Done</span>"},{"id":105962614,"gmtCreate":1678102915675,"gmtModify":1678102918962,"authorId":3577276346364161,"author":{"id":3577276346364161,"idStr":"3577276346364161","authorId":3577276346364161,"name":"yingchee","avatar":"https://static.tigerbbs.com/e10994e01ac3e4d36bb961bc53f9dfe4","vip":1,"crmLevel":4,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":9940432227,"type":1,"supId":0,"prevId":0,"content":"<span class=\"s1\">Read</span>","text":"<span class=\"s1\">Read</span>","html":"<span class=\"s1\">Read</span>"},{"id":105962613,"gmtCreate":1678102910533,"gmtModify":1678102916727,"authorId":3566970947632746,"author":{"id":3566970947632746,"idStr":"3566970947632746","authorId":3566970947632746,"name":"csk9969","avatar":"https://community-static.tradeup.com/news/fad187f77466d3721487e06a87b245dc","vip":1,"currentWearingBadge":{"badgeId":"cbe1c45c584340f3bd9ae6c77e0e9981-2","templateUuid":"cbe1c45c584340f3bd9ae6c77e0e9981","name":"Academy Explorer","description":"20 lessons learned","bigImgUrl":"https://community-static.tradeup.com/news/63cc10a4789c3eaa019b225a55136cf9","smallImgUrl":"https://community-static.tradeup.com/news/b1f0cbf3ae1b0a4593ddb3434df74ce0","redirectLinkEnabled":0,"hasAllocated":1,"isWearing":1,"stampPosition":0,"hasStamp":0,"allocationCount":1,"allocatedDate":"2022.09.24","individualDisplayEnabled":0,"individualDisplaySort":0,"categoryType":2006},"crmLevel":3,"crmLevelSwitch":1,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":9940432227,"type":1,"supId":0,"prevId":0,"content":"👍","text":"👍","html":"👍"}],"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":62,"commentSize":2,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; 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