NIO Stock Rises to Highest Level Since January Amid China Stimulus Optimism

Chinese electric vehicle (EV) maker NIO (NYSE: NIO) gained over 25% last week amid the broad-based rally in Chinese tech shares. The stock has risen to the highest level since January even though it is still negative for the year despite the recent gains.

China has announced a flurry of monetary and fiscal policy stimulus to support its economy which has been reeling under the impact of a slowdown at home as well as globally.

China Loosened Monetary Policy

Last week, People’s Bank of China (PBOC) Governor Pan Gongsheng announced that it will cut reserve requirement ratio (RRR) which is the cash banks need to have on hand by 50 basis points. While Pan did not spell out the timeline for the cut, he said that the Chinese central bank would cut the RRR by another 25-50 basis points by the end of the year. Pan also announced that the PBOC will cut the 7-day repo rate by 20 basis points.

Pan also announced a 0.2-0.25% cut in the loan prime rate could follow, without specifying whether it would be done for the one-year or five-year tenure. These measures would increase liquidity in the Chinese financial system.

China also announced multiple fiscal measures to support the ailing housing and banking sectors. Notably, while none of the measures were specifically directed at the automotive sector, EV stocks like NIO and Xpeng Motors were among the biggest gainers last week.

NIO Stock Rises to Highest Level Since January

NIO stock, which fell to multi-year lows earlier this year has risen to the highest level since January. While the broad-based rally in Chinese stocks has helped NIO, optimism is also building around the company.

NIO’s deliveries have improved in 2024 and have topped 20,000 for four consecutive months. In the first eight months of the year, NIO’s deliveries rose 35.8% to 128,100. It expects to deliver between 61,000 and 63,000 vehicles in Q3 whose midpoint would imply deliveries being above 20,000 in September also.

Along with growing its deliveries, NIO has also improved its margins and its gross margin rose to 9.7% in Q2 which was over twice the previous quarter.

NIO’s CFO Stanley Yu Qu said, “We will continue to focus on efficient R&D and infrastructure investment, leverage the growth potential in the mass market, adopt flexible market strategies and continuously optimize our product portfolio. We are confident that these efforts will result in steady improvements in gross profit and cost efficiency in the future.”

NIO Has Been Expanding to Mass Markets

NIO positioned itself as a luxury EV company. However, it has also been launching lower-priced models and has begun deliveries of its Onvo L60 model which is priced around $4,000 below Tesla’s best-selling Model Y.

NIO has reportedly received strong bookings for the model and expects to ramp up monthly deliveries to around 10,000 by the end of the year. It expects deliveries to rise further next year and is targeting a vehicle margin of 15% from the model.

The company is next looking to launch even cheaper models under the Firefly brand in 2025.

JP Morgan Sees Strong Demand for Onvo Cars

JP Morgan analyst Nick Lai visited three major ONVO stores in Shanghai where he spoke with showroom sales staff and likely buyers who visited the stores. Lai was quite optimistic about the model’s outlook following his channel check and said, “Our visits enhance our confidence on ONVO’s sales momentum and its successful product positioning.”

Lai maintained his overweight rating and $8 target price on NIO as he sees Onvo sales rising sharply in 2025. He also expects NIO to become positive on the operating cash level in the final quarter of this year.

NIO anyway has a strong balance sheet and held $5.7 billion worth of cash and cash equivalents at the end of Q2. It is backed by UAE’s CYVN Holdings which has poured $3 billion into the company.

Morgan Stanley is Also Bullish on NIO

Morgan Stanley is bullish on NIO and the Onvo L60. The brokerage is however circumspect on the company’s execution and said, “NIO’s unproven execution remains the key culprit, on which bulls and bears can argue their respective cases. Market conviction, supply chain commitment and corporate (operating & financing) cash flow will all hinge heavily on the success of the L60.”

NIO is among the most promising Chinese EV stocks and has built a niche for itself in the premium EV market. The company’s BaaS (batter-as-a-service) is another differentiator and helps it lower the initial buying price for its cars.

The outlook for Chinese EV stocks in general looks positive looking at the impetus that the government has placed on the sector. The Chinese government sees electric cars as a strategic industry and the sector forms part of its “Make in China 2025” program.

Chinese EV Companies Face Tariffs in the West

However, the overseas ambitions of Chinese EV companies have been hampered by tariffs in Europe, Canada, and the US. During the Q2 earnings call, responding to an analyst’s question on the tariffs in Europe, NIO’s CEO William Li admitted that they would make it expensive to export cars there.

He added, “We also know that to establish NIO, such a premium brand in the European market, will also take a longer time and we are very patient with that. But in the meantime, it doesn’t mean that we have stopped our activities there.”

While several Chinese EV companies are contemplating building plants in Europe to evade the tariffs, NIO hasn’t announced any such plans so far even as it is reportedly looking to buy Audi’s troubled plant in Brussels.