Nio Sales Expected to More Than Double in 2Q.

NIO ET5 in Stuttgart. Photo by: Alexander-93. Wiki Commons.

Nio Sales Expected to More Than Double in 2Q. 
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​Nio is a Tesla electric vehicle competitor that is based out of China. The company announced on June 6, 2024,  that they are expecting their 2Q 2024 deliveries to increase by 138% at the top end of the forecast, and that revenue will soar 90% year over year. Nio is a former meme stock darling, whose shares summited at $67/share in January 2021. Today they are trading at under $5/share.

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Nio was a meme stock in Jan. 2021, hitting $67/share briefly. Chart MSN.com. (c) Microsoft. Used with permission.

Nio’s deliveries report is expected on July 1, 2024, while the earnings report could be released at the end of August. Nio also received the greenlight in China to open up a 3rd factory. Is that enough to send investors into a buying frenzy, or are there other considerations that might keep the stock from popping? What about the fierce competition in electric vehicles, or the negative sentiment that U.S. investors have for Chinese equities? Below are the topics I will discuss in this blog.
 
Global EV Sales & Expectations
Deliveries and Revenue Expected to Double
Competing with Tesla
European & U.S. Tariffs
Is Being Cash Negative a Problem?
Valuation
Will U.S. Investors Ever Love Chinese Equities Again?
 
 
And here is more color on each topic.
 
Global EV Sales & Expectations
According to the International Energy Agency, global electric car sales are expected to reach 17 million in 2024. 10 million will be sold in China alone. That’s more than one in five cars sold in that country. Expectations are (based on current policies) that by 2030, 1/3 of the cars in China and 1/5 of those in the U.S. will be electric. This year, European EVs are expecting to account for one in every four sales.
 
At least three manufacturers — Tesla, Hyundai-Kia and General Motors — now offer EVs with more than 300 miles (480 kilometers) of range for less than the cost of the average new vehicle sold in the US, according to an analysis by Bloomberg Green. Per the IEA, “In China, more than 60% of electric cars sold in 2023 were already less expensive to buy than their conventional equivalents.” EV prices are dropping due to fierce competition. The increase in driving range between charges makes them more attractive for consumers. There has also been a rapid expansion of super charging stations, where a full charge can be achieved in about 20 minutes.

As I mentioned in my EV blog of March 11, 2024, China became the number one auto exporter in May of this year, above Japan. China is also the biggest consumer of EVs, by far. However, there are far too many Chinese EV automakers, and we’re already seeing bankruptcies and fallout as a result of this. Even smart phone companies Huawei and Xiaomi have EVs these days.
 
The competition is driving down prices. The weaker companies will be forced into consolidation or annihilation in the years to come. BYD is the top selling EV manufacturer. Berkshire Hathaway is one of the largest shareholders, with a stake of 6.9%. Tesla is still competing in the top 10, but there are plenty of luxury EVs that are gunning to take Tesla’s spot, including Nio.
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Deliveries and Revenue Expected to Double
As mentioned above, Nio’s deliveries and revenue growth should delight investors. The company delivered 36,614 vehicles in April and May of 2024, with another 19,836 expected in June. According to William Bin Li, founder, chairman and chief executive officer of NIO, “Despite the intensifying market competition, NIO’s premium brand positioning, industry-leading technologies, and innovative ‘chargeable, swappable, upgradeable’ power experience have been recognized for their exceptional competitiveness, leading to solid sequential growth in vehicle deliveries in recent months. Nio is competing for Tesla’s customers, with attractive cars that sell for a little less.
 
Competing with Tesla
While Nio’s sales and revenue are doubling, Tesla’s revenues dropped -8.69% in the most recent quarter. Tesla’s inventory increased to 28 days in the 1Q of 2024, versus 15 days in 4Q 2023. Tesla has a very strong brand worldwide, and is still the top selling EV in most markets. However, Nio has been getting noticed, too. Nio’s ET7 won car of the year in Sweden in 2023. It also won the Golden Wheel Award in Germany, and was a technological frontrunner of the year in Denmark, beating the Mercedes EQS and the Tesla model Y. Email [email protected] if you'd like an updated Auto Stock report Card. 
 
Tesla has warned that the company’s “vehicle volume growth rate may be noticeably lower than the growth rate achieved in 2023.” However, even if Tesla continues to sell slightly more cars this year, it is likely that the trend of lower revenue and profits will continue, as the price wars have forced all manufacturers to lower prices. Qualified consumers are now able to lease a Tesla for just $299/month!
 
European & U.S. Tariffs
Nio just launched a new more affordably priced SUV that is designed to compete directly with Tesla‘s model Y. According to Reuters, in May Nio unveiled the Onvo L60 SUV with a sticker price starting at 219,900 yuan ($30,300), while Tesla's Model Y starts at 249,900 yuan in China ($34,481). Nio was starting to compete with Tesla in Europe. On May 23, 2024, Nio opened an Amsterdam showroom. However, on June 12,2024, the EU slapped Chinese EVs with tariffs of up to 38.1%, which will undoubtedly stifle sales. The U.S. White House slapped a 100% tariff rate on Chinese EVs on May 14, 2024, effectively blocking the country from the U.S. market.

The U.S. and many European countries sell cars in China. There have been meetings where Chinese regulators are considering a retaliation with a tariff on foreign ICE vehicles (gas guzzlers). That would be a nightmare for Germany. This is an ongoing issue. However, according to Nio‘s CEO William Lio, most of Nio‘s car sales are in China. According to Li, the impact of tariffs will not materially harm their business at this time, though it will surely impede their expansion plan.



Is Being Cash Negative a Problem?
Tesla was cash negative for over a decade before it turned to profit. When an innovation disrupts an entrenched industry, such as autos, they have to build expensive factories in order to manufacture that market-changing product. That’s expensive. It’s just not uncommon for these kinds of companies to be cash negative for many years. 
 
Nio has $6.3 billion in cash, some of which is restricted. The company is investing in additional factories to keep up with demand. Other areas of expansion include the launch of the Firefly model, which will be a very affordable EV priced at just $13,800 to $27,600. It is intended to be a smaller 2nd vehicle for the household, marketed initially just to the Chinese consumer. Nio is also expanding their power swap network, which includes the ability for owners to upgrade to a longer range battery pack.
 
Valuation
Tesla’s net income was $15 billion in 2023. The company has a market capitalization of $580 billion. That’s very lofty, with a price earnings ratio of 46, even given that the company’s stock has already dropped almost -40% from its 52-week high. (The historical average P/E is 17.) Tesla is not expected to grow revenue or profits this year to match the lofty valuation.
 
Many of the younger EV manufacturers are cash negative. When we compare their price to sales ratios, Tesla is very elevated at 6.44, compared to a more reasonable 1.14 at Nio. Nio had sales of $7.8 billion in 2023 and its market cap is only 10.1 billion. (Tesla’s sales in 2023 were $96.8 billion.) So if investors do indeed get excited about the blowout deliveries report, which is scheduled for July 1, 2024, or the 2Q 2024 earnings report, which should be released at the end of August, there should be plenty of room for upside – if there wasn’t a generally negative sentiment among U.S. investors for Chinese stocks.
 
Will Global Investors Ever Love Chinese Equities Again?
Outside of a spurt of meme stock popularity in early 2021, Chinese equities have struggled to attract U.S. investors since 2018. Millennials and Gen Z are still very interested in trying to hit the jackpot with investing. However, many of them learned their lesson about due diligence in 2021, after getting burned on the wrong side of the trade on Gamestop, AMC, Bed, Bath & Beyond, Blackberry, et al.
 
So, will a blowout earnings report by Nio be enough to attract Reddit meme mania? While anything is possible (and memes were the key to Nio’s $67 price tag in 2021), the Index of Economic Freedom’s “Repressed” ranking of the Chinese economy sums up investor sentiment about Chinese equities at this time.

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Bottom Line
After years of supplies chain disruptions and all kinds of challenges, including fierce competition, Nio is emerging as a very well-run, beloved brand, not just by the Chinese, but also by the Europeans. (Americans aren’t allowed access to Chinese EVs at this time.) In a normal world, Nio’s share price should soar after their sensational 2Q 2024 earnings and deliveries reports. However, today’s world is anything but normal. If Nio achieves meme status, the rise and fall could be as spectacular and devastating as it was in 2021. Proceed with caution, even if the news manages to make headlines in the Western world.

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