NIO [NIO] saw its share price in the spotlight earlier this week, as the Chinese electric vehicle maker and its peers XPeng [XPEV] and Li Auto [LI] reported January delivery updates.
While NIO’s sequential fall in sales is not as severe as its competitors, year-on-year growth for January is lower than its rivals. Investors could be taking the view that the company is at risk of losing its spot as China’s top-selling all-electric SUV. NIO has a 23% share of the market, compared with Tesla [TSLA] at 17% and WM Motor and XPeng at 7%, according to the China Automotive Technology and Research Centre.
Semiconductor shortages, supply chain issues and a surge in competition from overseas makers are putting pressure on China’s EV industry overall. NIO delivered 9,652 vehicles in January 2022, a sequential decline of 8.7% from the previous month. Meanwhile, XPeng completed 12,992 deliveries at a sequential decline of 19.2% and Li Auto also posted a sequential decrease of 12.9% with 12,268 deliveries in January.
23%
NIO's industry-leading share of China's EV market
Hurting EV stocks
The NIO stock performance falls in the middle of its peers supported by a vote of confidence from some analysts. The sector has been hit by the broader selloff in high-growth tech stocks as investors put up with tighter monetary policy as well as higher interest rates and inflation.
Shares in the segment have also been hit by concerns over more regulatory crackdowns from China on its tech companies, especially those listed in the US. China also cut subsidies for new EVs by 30% this year and plans to withdraw them completely by the end of 2022.
The NIO share price has slumped 17.6% since the start of the year, closing at $26.10 on 9 February, while Li Auto and XPeng fell 6.1% and 19.1%, respectively, over the same period. Global peer Ford [F] is down by 11.2% and is playing catchup in EV sales.
After a difficult start to 2022, the NIO share price rallied 6% in the wake of a bullish analyst forecast last week. Barclays gave the stock an ‘overweight’ rating and a price target of $34, citing the “rapid adoption of EVs around the world and booming EV sales” as an opportunity for China’s EV makers to “build a dominant position on the world stage”. For now, NIO has an early mover advantage in the EV industry, second only to Tesla.
Competition is growing
The competition in the global EV market is heating up as US rival Lucid Motors [LCID] is giving NIO a run for its money following its Nasdaq listing as a public company through a SPAC deal in July 2021.
The company reported an increase in reservations in the third quarter and reached its production target for 2022.
Lucid Motors said that its customer reservations rose to 13,000 in Q3, reflecting an order book worth approximately $1.3bn, and have since increased beyond 17,000. Meanwhile, NIO delivered 24,439 vehicles in the September quarter, posting $1.3bn revenue for the three months.
Expectations are high for both NIO and Lucid Motors in 2022. The Chinese EV maker expects to deliver between 23,500 and 25,500 vehicles in Q4, an increase of 35.4% to 46.9% from the year-ago quarter. Lucid expects to meet its 20,000 vehicle production target for 2023, buoyed by the success of its award-winning Air sedan.
23,500-25,500
Total EVs NIO expects to deliver in Q4
NIO shares rated ‘buy’
With the NIO stock trading below $30 for much of the year so far, many analysts believe it is oversold and undervalued at the current price. According to 11 analysts polled by MarketBeat, the stock has a consensus ‘buy’ rating and an average price target of $57.57, representing a potential upside of 112.91% on the 9 February closing price.
The rating is backed by strong fundamentals that pave a growth path for the company in this highly competitive market.
The company’s financials are improving as it climbs closer towards profitability. NIO’s gross margins for Q3 FY21 stood at 20%, and it is likely that analysts could increase their price targets as the company improves its economies of scale and profitability.
Growth forecasts by analysts put NIO ahead of Tesla but behind XPeng, according to Forbes. NIO’s 2022 revenues are expected to grow by 75%. The Chinese EV maker will be banking on the success of two new sedan models it plans to release this year, and expansion into European markets.
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