Chinese electric car manufacturer
offers a warning story for
investors. What happened to the shares could happen
if volume growth at
follows a similar path as its Chinese rival.
) stock has had a brutal run lately, down around 30% so far this year. The shares are down approx. 60% from the highest level in July 52 weeks of more than $ 55 and down almost 70% from the highest record of almost $ 67. All this is despite a recent bounce. The NIO shares, which are trading at around 23 dollars, reached the bottom of below 12 dollars in mid-May.
Astonished investors are probably wondering how it got so bad so quickly. There are some candidates to blame. Fears related to the US delisting of Chinese shares reappeared in 2022. In addition, inflation as well as Covid-19 have been problems. Still, NINE peers
(LI) faced the same problems, and the shares of the two electric car manufacturers have held up better than the NIO share.
It is difficult to blame the NIO management for all the underperformance. The company has never missed sales estimates on Wall Street when reporting quarterly or full-year figures. And NIO continues to introduce new models for Chinese electric car buyers. The latest new NIO model is an SUV called the ES7.
The problem for the stock is simply unit growth. NIO has been stuck in a series of approximately 10,000 monthly deliveries for almost a year. Growth investors find it unacceptable.
“NIO is a warning story for Tesla and the general EV industry,” says Wedbush analyst Dan Ives Barrons. “It’s about scale and scope of production, [which] eventually became NIO’s albatross in the last year. The multiple was shattered when growth slowed dramatically. ”
Ives does not cover NIO shares, but he is a Tesla (TSLA) bull, rating shares Buy. His price target is $ 1,000 per share.
Back in early 2021, shortly after NIO held an event for consumers and investors, the shares were traded for about 18 times estimated 2021 sales. Tesla at the time traded for about 16 times estimated sales. All multiples are down in the bear market, but the NIO share is now traded for about 4 times the estimated 2022 sale, a big discount of 8 times the multiple for Tesla shares.
Tesla’s multiple has held up better because the company has managed to maintain faster volume growth than NIO. Tesla has opened new production facilities and expanded its existing factories to keep deliveries increasing quarter by quarter and year over year.
Tesla’s deliveries in the first quarter of 2022 increased by approximately 68% from the same period a year ago. NIO’s deliveries grew by approx. 28%. And despite Covid-related production declines, Tesla’s deliveries in the second quarter are expected to grow by around 30% compared to last year. NIO’s deliveries in the second quarter are expected to grow closer to 10%.
(Tesla has delivered more than one million electric cars in the last 12 months. NIO has delivered approximately 128,000.)
The message for Tesla investors is easy to see: Focus on delivery growth. 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, is likely to produce 2.5 million or so cars out of its existing production footprint, which includes factories in California, Texas and Germany as well as China. In addition, it has taken Tesla about two years from breaking ground on a plant to cars rolled off the assembly line. Investors should probably think about a new facility, or a significant expansion within the existing footprint, by this time next year. If one is not on the move, the Tesla stock could face a NINE-like problem.
The message to NIO investors is just as easy to see: Get growth going again. NIO has expanded its capacity in 2022. It hopes to reach between 40,000 and 50,000 units quarterly production capacity in the second half of 2022. Supply chain problems may obscure this potential. If NIO management can get through and make unit deliveries rise again, investors should respond with relief.
Write to Al Root at firstname.lastname@example.org