NIO Stock Price Down 30% in 2022 – Time to Buy NIO Stock?

NIO stock has whipsawed over the last couple of years. It survived a bankruptcy scare in 2020 and eventually rose over 1,100% in the year. However, the stock fell 40% in 2021 and underperformed other EV (electric vehicle) stocks.

2022 has been no better for NIO and the stock fell to a multi-month low of $13.01. It has since rebounded and trades above $20 but is still down over 30% for the year. The stock is looking weak in US premarket price action today also. What’s the forecast for the stock and is it a good buy in March 2022?

NIO stock recent news

NIO released its fourth-quarter 2022 earnings yesterday after the markets closed. It generated revenues of $1.55 billion in the quarter, which were slightly ahead of what analysts were expecting. Of this almost $1.45 billion was the automotive revenue. The company’s revenues increased over 49% YoY led by higher deliveries.

The company delivered 25,034 cars in the fourth quarter of 2021 as compared to 17,353 vehicles in the fourth quarter of 2020. Overall, in 2021, it delivered 91,429 cars, which was below what Xpeng Motors had delivered. The deliveries were only slightly ahead of Li Auto as well. The delivery performance also reflects in these companies’ stock prices and NIO underperformed fellow Chinese EV stocks in 2021.

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Wider than expected loss

Meanwhile, the slight topline beat does not mask the miss on the bottomline. The company posted a net loss of $336.4 million in the quarter, which was much higher than what analysts polled by Bloomberg were expecting.

NIO reported a gross margin of 17.2% in the fourth quarter which was similar to the corresponding quarter in 2020 but 310 points lower than the previous quarter. The company attributed the sequential fall in gross profit margins to the sales of regulatory credits in the third quarter which bumped up its margins in that quarter.

Cost pressures

That said, automotive companies, especially electric car companies, are battling with a rise in input costs. Prices of key raw materials like steel, aluminum, copper, lithium, nickel, and plastics have risen. This has prompted companies like Tesla and Rivian to announce price hikes. Tesla had announced multiple price hikes last year also. While all the pure-play EV companies are posting losses, Tesla has turned profitable on a sustainable basis. The company has posted a net profit in all the quarters since Q3 2019.

Meanwhile, earlier this week, NIO clarified that it does not intend to raise prices for now but said that it would be flexible. Among Chinese EV makers, Xpeng and Warren Buffett-backed BYD have announced price hikes. Given the steep rise in input costs and price hikes by competitors, NIO might also need to raise prices sooner than later.

The balance sheet looks strong

NIO’s balance sheet has come a long way since the first quarter of 2020 when it seemed headed for bankruptcy.  Since then, it has raised cash through multiple share issuances. The most recent round of ADS issuance was completed in November 2021 when the company raised gross proceeds of almost $2 billion. However, while it listed on the Hong Kong markets in 2022, following the footsteps of Li Auto and Xpeng Motors, it did not raise cash from the listing. Xpeng Motors, which listed in Hong Kong in 2021 raised around $2 billion from the listing. Nonetheless, NIO has a strong cash position and ended 2021 with a cash of $8.7 billion.

Guidance disappointed

NIO has been disappointing with its delivery report for quite some time now as both Li Auto and Xpeng have been outselling it. The company expects to deliver between 25,000-26,000 cars in the first quarter of 2022. It has already delivered 15,783 cars in the first two months of the year which would mean deliveries of only about 10,217 cars in March. The guidance was below Street estimates even as NIO invariably provides very conservative guidance.

NIO is grappling with supply chain issues like other automotive companies. Its CEO William Li said during the earnings call that “We are still faced with the challenges of growing chip supply volatility, raw material cost increases, Covid, and the challenges in the changing international situation.”

NIO stock forecast

The company sounded bullish on its outlook during the earnings call. It said, “2022 will be a year of reacceleration for NIO. We will deliver three new products based on NIO Technology Platform 2.0 this year.” It said that the deliveries of the ET7 sedan would begin on March 28 as planned while the deliveries of ET5 are expected to begin from September.

Notably, earlier this year, Tesla had said that it would delay the launch of new vehicles, including the Cybertruck to 2023. The company is looking to maximize the production of existing models amid the global supply chain issues. Tesla stock had tumbled after the earnings release. Investors are giving a thumbs down to NIO’s earnings as well and the stock was trading lower in premarkets today.

NIO stock target price

Wall Street analysts have a bullish forecast for NIO stock though. it has a median target price of $44.95 which is a premium of 104% over current prices. Its street high target price is $87 which is a premium of 294% over current prices. Of the 28 analysts covering the stock 25 rate them as a buy while three analysts have a hold rating.

Earlier this week, Deutsche Bank reiterated the stock as a buy while lowering its target price from $70 to $50. It said, “NIO has cultivated an aspirational premium brand, underpinned by a leading service infrastructure that no domestic automaker has been able to match, in our view. While volumes have stagnated over the past few quarters due to operational bottlenecks, we think deliveries are on track to increase from 10k/month to 25k exiting the year which will shift the narrative away from supply constraints to product cycle.”

NIO stock long term forecast

Notably, last year, NIO had said that its production partner JAC Motors would double its production capacity in order to meet the rising demand. However, in the short term, the company’s production plans have been hampered by supply chain issues, especially the global chip shortage.

The long-term outlook for NIO stock looks positive. The company is coming up with two new sedans this year and is also expanding into newer markets. These efforts would drive the long-term value for investors. Also, the company is expected gradually improve its earnings and eventually turn sustainably profitable like Tesla.

Should you buy NIO stock?

NIO now trades at an NTM (next-12 months) EV-to-sales multiple of 4.22x which is below its historical multiples. China has given signals that it intends to end the tech crackdown and also support the overseas listing of Chinese companies. If the country delivers on the promise, Chinese stocks might turn out to be quite rewarding for investors over the medium term given their depressed valuations.

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