What happened
After some tough luck Wednesday, Nio (NIO 1.16%) stock fell further today and was trading down 3.7% as of 10 a.m. ET. It had slipped 5.9% at the market's opening this morning. On a day when other Chinese electric vehicle (EV) stocks like XPeng and Li Auto kicked off the day on a positive note, why is Nio stock falling?
So what
Nio reported its much-awaited fourth-quarter numbers on March 1. The company's deliveries hit a quarterly record of 40,052 units and it generated revenue worth $2.3 billion, but investors' attention was on Nio's bottom line and expectations for 2023.
Unfortunately, Nio disappointed on both fronts, and at least three analysts cut their price targets on the EV stock today.
NYSE: NIO
Key Data Points
Nio's margins were already under pressure in recent quarters, but not many expected to see its gross margin plunge to 3.9% in Q4. Also, Nio said it'll deliver only 31,000 to 33,000 vehicles in its first quarter this year. In sharp contrast, Li Auto's gross margin jumped to 20% in Q4, and the EV maker expects to deliver 52,000 to 55,000 vehicles in the first quarter. XPeng has yet to announce its numbers.
Nio's depleting gross margin and outlook attracted several analyst downgrades today:
- Mizuho analyst Vijay Rakesh cut Nio stock's price target to $25 per share from $28 a share.
- Barclays analyst Jiong Shao slashed Nio's price target to only $10 per share from $18 a share.
- J.P. Morgan analyst Nick Lai cut the stock's price target to $10 a share from $14 per share.
Now what
Nio's low gross margin came as a shock, but you wouldn't want to write off the stock just yet. Nio is transitioning its EV models to a second-generation technology platform, NT2.0. So the company was busy selling out old stock in the last quarter and reportedly also offered incentives to customers, which added to its costs. Meanwhile, Nio is still preparing its manufacturing lines to produce the new models, which is a major reason why it sees lower production and fewer deliveries in the first quarter.
Of course, high battery costs remain a concern, but management stated supply chain bottlenecks shouldn't be a constraint for Nio anymore. Management is also confident that Nio's margins will climb back to double-digits by the end of 2023 as it starts deliveries of higher-margin models, and it still expects Nio to break even in 2024.
So although the markets may be signaling otherwise today, I wouldn't be surprised to see some investors buy Nio stock on the dip for the long term.
