Categories Analysis, Consumer, Markets

Here’s why Nio might not be a good investment at the moment

China-based premium electric carmaker Nio (NYSE: NIO) had one of the grandest Chinese stock debuts last year at the New York Stock Exchange. It was touted as a formidable international competitor to Tesla (NASDAQ: TSLA) and other electric vehicle manufacturers. However, the latest earnings report from Nio seems to have turned the table for the Chinese company.

Though the company surpassed market expectations on both the revenues and income during the quarter, vehicle sales plunged 54% hurt by a cut down in the EV subsidy and slow macro-economic conditions in China caused by the trade war with the US. The management also stated that they expect the weakness to continue into the current quarter.

nio revenue performance

Including the planned delivery of ES6 models, the company expects total deliveries in the current quarter to hit 2,800 to 3,200 units. This represents almost 20-30% decline from the prior sequential quarter. The ES6 is a high-performance premium SUV, which will be rolled off this month. The company claims to have over 12,000 pre-orders for the ES6.

In a greater-than-expected slow-down, Nio’s flagship vehicle, the ES8, saw its deliveries tumble to 3,989 vehicles from 7,980 vehicles in previous quarter.

Nio vs Tesla model 3 deliveries

The planned launch of the electric sedan, ET7, was also delayed, and market observers suspect Tesla’s aggressive marketing into the Chinese EV market to be the reason. The management is likely to focus on ES8 and ES6, before it can afford to place a new model in the highly competitive market.

Tesla had earlier this week opened its pre-orders for Model 3, which would be locally manufactured at its Shanghai Gigafactory. According to local media reports, the bookings were met with an overwhelming response, with all pre-order slots filling in just 3 minutes.

LISTEN TO: Nio Q1 2019 earnings conference call

The locally made Tesla Model 3 would cost $47,529. Earlier, the vehicles were being imported from the US, which had elevated the selling price to $54,616. In comparison, the ES8 costs about $65,000 in the Chinese market.

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The Shanghai factory is cutting down Tesla’s logistical problems of launching an aggressive assault into the Chinese EV market, besides sidestepping the US-China spat.    

stock movement - nio and its peers

Tesla’s overwhelming response in Nio’s home market does not paint a bright picture for the Chinese firm, at least in the short term. China is potentially one of the largest markets of EV and the government is focused on making at least a fifth of new car sales by 2025 to be electric. Nio may be positioned to bite off a share of this market, but with more diverse product offerings, international rivals are at a much better position at the moment.

Convinced by these headwinds, Bank of America analyst had recently downgraded Nio to Underperform from Neutral, and slashed the price target to $3, from $6.20.

nio Q1 2018 earnings conference call

Listen to on-demand earnings calls and hear how management responds to analysts’ questions

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