Nio Stock (NYSE:NIO)
After reporting profits significantly below forecasts, investors dumped Nio Inc. (NYSE:NIO) stock on Thursday.
The Chinese EV maker’s losses widened in the fourth quarter, and its margins shrank dramatically. In addition, 2023 delivery estimates were far lower than what was expected by Wall Street.
Q4 vehicle margin was 6.8%, down significantly from 20.9% in Q4 2021 and 16.4% in Q3 2022. The gross margin for 2022’s fourth quarter was 3.9%, down from 17.2% for 2021’s and 13.3% for 2022’s third quarter. The top management has forecasted a return to normal margins in late 2023.
Due to these factors, Barclays and JP Morgan analysts took a wait-and-see approach.
JP Morgan analyst Nick Lai told clients, “We think the stock will probably trade sideways in the near future, and we would reassess a possible turning point in mid-to-late 2Q23 based on the size of the sequential volume and margin improvement. We are directionally bullish but cautious because street expectations are too high, which leaves surprise bias more to the downside than the upside.”
He also noted that margin pressure will likely be a persistent issue because of Tesla’s price drops, which have prompted a pricing war throughout the Chinese EV industry. Lai lowered his price objective on the stock from $14 to $10 and moved it to Equal Weight from Overweight.
Also affected by margin worries, Barclays analyst Jiong Shao downgraded his recommendation on Nio stock from Buy to Hold.
The miss “reflects the challenges NIO is still facing in optimizing its industrial planning and operations,” he wrote on Thursday, noting that lower-than-expected GM was partly attributed to inventory write-offs or cancellation of purchase commitments for parts for the older and now phased-out models. Due to “increased risks from such expenditure,” “uncertain destiny of newer models,” and “intensified rivalry in China’s EV market in general,” we are temporarily withdrawing our services to await more information on the status of the transition.
He continued, saying that he did not expect “the massive expenditure at NIO to ease down anytime soon” while the company’s 2023 new car launches and ambitious growth plans, which include entering the European market, unfold. Together with the downgrade, Shao lowered his price objective from $18 to $10.
Nio stock dropped by another 2.61% on Thursday, adding to the steep losses seen on Wednesday.