NIO Stock's Nosedive Looks Fair

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NIO Stock's Nosedive Looks Fair

seekingalpha01-23

NIO delivered 160k vehicles in 2023, lagging behind the overall Chinese EV market's growth pace.As competition in the Chinese EV market intensifies, NIO faces challenges in keeping up with companies ...

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Kelvinpek
·01-23
Who are you to comment that NIO is not a good share to but now?
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王三岁m
·01-23
Which intern wrote this trash. $1.30 u must as well say $0 ?
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Bloomberg/Bloomberg via Getty Images Introduction NIO's (NYSE:NIO) stock, currently trading at one-tenth of its peak reached in early 2021, may appear enticing for a buy-the-dip strategy. However, my valuation analysis indicates substantial potential for further decline. Beyond overvaluation concerns, fundamental analysis highlights NIO's increasing competition in the Chinese electric vehicle (EV) market and the impending challenge of contending with established German luxury automakers in the premium segment. Given the cloudy outlook and overvaluation, I am inclined to assign a 'Strong Sell' rating to NIO. Fundamental analysis NIO Inc. is a Chinese automotive company that positions itself as a premium EV brand. According to the company's latest quarterly report, NIO’s product portfolio consists of the ES8, a six-seater smart electric flagship SUV; the ES7 (or the EL7), a mid-large five-seater smart electric SUV; the ES6 (or the EL6), a five-seater all-round smart electric SUV, the EC7, a five-seater smart electric flagship coupe SUV, the EC6, a five-seater smart electric coupe SUV, the ET7, a smart electric flagship sedan, the ET5, a mid-size smart electric sedan, and the ET5T, a smart electric tourer. The Chinese EV market is highly competitive, with over 94 brands offering more than 300 models. Counterpoint The company delivered 160k vehicles in 2023, which was 30.7% higher than 2022. Numbers lack significance without context, so let me provide some additional insight here. According to Nikkei Asia, the overall Chinese EV market expanded by 38% in 2023 on a YoY basis. The fact that NIO lagged behind the overall Chinese market's growth pace is not very good, as it indicates that the company lost its market share to competitors in 2023. By the way, according to the same source, Nikkei, there were 9.5 million units of EVs sold in China in 2023. This means that NIO holds around 1.7% market share in China. For comparison, the Chinese EV leader in terms of delivery volumes, BYD (OTCPK:BYDDF), sold 1.6 million fully electric vehicles in 2023, ten times more than NIO. The undisputable U.S. EV leader, Tesla (TSLA) has a plant in Shanghai, China. Tesla delivered 947k vehicles from this plant in 2023, almost six times more than NIO did. Nikkei Asia Besides these two EV giants, NIO also competes with several large legacy automakers switching to EVs. The Chinese EV market's annual sales are nearly 10 million cars, and its rapid growth renders it highly appealing to all automakers. As NIO focuses on the premium segment, it's crucial to observe the strategies employed by German luxury automakers in China. For example, Mercedes-Benz (OTCPK:MBGAF) sees China as the major long-term EV sales driver. Interestingly, prominent Chinese investors hold nearly 20% of Mercedes' shares, further indicating a strong inclination towards prioritizing the Chinese market. Another iconic German luxury brand, BMW (OTCPK:BMWYY), sold far fewer cars in China last year than NIO, slightly below 100k EVs. But the growth momentum is massive, soaring 138% YoY, which means BMW is rapidly gaining share in the Chinese EV market. I came across a compelling BCG chart illustrating low overall automotive brand loyalty in China, with foreign premium brands, especially German ones, enjoying the highest loyalty levels. Despite the chart being a decade old, the durable nature of products like cars suggests that customer behavior may not have shifted dramatically. Hence, I believe this chart remains relevant today, signaling a challenging path for NIO to surpass the customer loyalty achieved by established German luxury automakers such as Mercedes and BMW. BCG The competition from NIO's close Chinese rivals like Li Auto (LI) and Zeekr is also fierce. Both these brands also position themselves as premium cars. And NIO is losing to LI by a wide margin. Li Auto delivered 376k vehicles in 2023, which was up 182% YoY. Zeekr sold less than Nio in 2023, about 119k vehicles in 2023, but is planning to double deliveries in 2024 to around 230k cars, which will be approximately the same level as NIO's targets. Furthermore, Li Auto targets delivering 800k units in 2024, meaning that NIO will unlikely catch up in the foreseeable future. In conclusion, an analysis of the Chinese EV market and NIO's competitive landscape reveals a vulnerable market position for the company, with the likelihood of intensified competition from German luxury automakers. When compared to even smaller Chinese rivals, the dynamics of delivery numbers suggest that NIO faces efficiency challenges even in competing with smaller players. Consequently, the prospect of competing with industry giants like Mercedes and BMW appears untenable for the company. For me and my readers as potential investors, it is also essential to take a look at NIO's financial performance. While the trailing twelve months (\"TTM\") reveal an impressive upward trajectory in revenue dynamics, a concerning pattern emerges – the more cars the company sells, the deeper the operating loss becomes. This prompts significant doubts about the viability of NIO's business model. The production expansion should drive down costs and help boost profits; otherwise, there is no point in driving revenue growth. The -41% operating margin might be okay for a young company like NIO, but the downward trend is an apparent big warning sign. Data by YCharts Valuation analysis NIO's stock price peaked in early 2021 and currently trades around ten times cheaper. Furthermore, the stock currently trades to the lower edge of the last 52-week range. Over the last 12 months, the stock price has dropped by almost 44%. Overall, NIO's stock price demonstrates very weak momentum. The current market cap is almost $11 billion, and the short interest is high at 15%. For a growth stock like NIO, the discounted cash flow (\"DCF\") approach is the best fit for valuation assessment. I will discount NIO's future cash flows at a recommended by Finbox 11.5% discount rate. Considering bright growth prospects for the overall Chinese EV market, I apply a high 7% constant growth rate for the terminal value (\"TV\") calculation. Consensus of 29 Wall Street analysts project a 45% YoY revenue growth in 2024, and I expect it to decelerate by 500 basis points each year as comparatives grow. The substantial uncertainty is around the levered free cash flow (\"FCF\") break-even timing, but I expect a 200 basis points expansion every year starting from 2025. Currently, there are around 1.7 billion shares outstanding. Calculated by the author As shown above, the fair valuation for the stock stands at $1.26, far below the current market price, even when incorporating optimistic revenue growth assumptions and with a high 7% constant growth rate. Therefore, based on my DCF, the stock is poised to continue declining further. Mitigating factors To present a fair view of NIO to my readers, I also have to mention the positives. Despite having wide operating losses and still deeply negative FCF margins, NIO still has substantial financial resources to continue investing in marketing, improving current offerings, and developing new models. According to Yahoo Finance, the company had around 39 billion CNY in cash as of the end of Q3, which is approximately $5.4 billion. Furthermore, NIO is supported by a substantial fund from resource-endowed Abu Dhabi, and the company recently secured an additional $2.2 billion investment from this prominent investor. This suggests that it might be premature to dismiss NIO's future prospects. Yahoo Finance The current global geopolitical landscape is marked by significant uncertainty as tensions escalate between the East and the West, resembling a Second Cold War. China appears to have fewer geopolitical tensions with Europe compared to the U.S. However, given that Europe's most developed economies are allies of the U.S., potential tensions between China and Western Europe may only be a matter of time. If geopolitical tensions between China and the developed world escalate, challenges for European and American EV makers to access the Chinese market due to stricter trade regulations or increased tariffs could render large global players noncompetitive in the Chinese EV market. In the event of such a scenario, it would serve as a significant positive catalyst for all Chinese EV makers, even those that currently trail behind local competitors, such as NIO. Conclusion  NIO faces a limited number of positive catalysts, and possessing substantial financial reserves does not assure future success, particularly in light of NIO's recent underperformance and trailing behind competitors. As competition intensifies, I anticipate NIO will persist in trailing behind the overall growth of the Chinese EV market. Furthermore, my discounted cash flow analysis points to significant stock overvaluation. Considering these unfavorable factors collectively, I have assigned the stock a 'Strong Sell' rating.","kind":"highlight","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":266188157964288,"gmtCreate":1706022995483,"gmtModify":1706023000275,"author":{"id":"3586901224607740","authorId":"3586901224607740","name":"Kelvinpek","avatar":"https://static.tigerbbs.com/6f1223a43f2b8a76227b16bc668512d6","vip":1,"crmLevel":2,"crmLevelSwitch":1,"idStr":"3586901224607740","authorIdStr":"3586901224607740"},"htmlText":"Who are you to comment that NIO is not a good share to but now?","listText":"Who are you to comment that NIO is not a good share to but now?","text":"Who are you to comment that NIO is not a good share to but now?","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/266188157964288","repostId":2405129752,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":266182460584160,"gmtCreate":1706021607855,"gmtModify":1706022300662,"author":{"id":"3577857198559418","authorId":"3577857198559418","name":"王三岁m","avatar":"https://static.tigerbbs.com/747d0092512e0b11cb72685285342d97","vip":1,"crmLevel":1,"crmLevelSwitch":0,"idStr":"3577857198559418","authorIdStr":"3577857198559418"},"htmlText":"Which intern wrote this trash. $1.30 u must as well say $0 ?&nbsp;","listText":"Which intern wrote this trash. $1.30 u must as well say $0 ?&nbsp;","text":"Which intern wrote this trash. $1.30 u must as well say $0 ?","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/266182460584160","repostId":2405129752,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"hasMoreComments":true,"newsSizeData":{"likeSize":1,"commentSize":2,"repostSize":2,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false}}