The electric vehicle transition that is well and truly underway has made investors sit up and take a look at some promising opportunities. Even as most stocks capitalized on this frenzy in 2021, some, including NIO (NYSE: NIO) stock, have missed the bus.
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This is despite the Shanghai-headquartered Chinese EV start-up making all the right noises and navigating through the supply constraints without much damage.
NIO Stock Under Grey Sky In 2021
Nio is locally called Weilai, which roughly translates to “Blue Sky Coming.” But far from clear skies, NIO had a forgettable year in 2021, with the stock cratering despite lacking any strong negative catalysts. The company did have its fair share of fundamental woes, but the issues were more industry-wide in nature than company-specific.
NIO had a relatively stronger pandemic year in 202, and had a rip-roaring start to 2021. Catalyzed by a hugely successful “NIO Day 2020” event held on Jan. 9, 2021, the stock ran up to an all-time high of $66.99 in the session that followed the annual event.
The stock pulled back from the peak immediately after, dragged down by a $1.3 billion convertible note offering announced Jan. 11, 2021.
Despite a couple of attempts to break the downtrend throughout the year, it broadly moved lower before bottoming for a time at $30.71 on May 13. The weakness in the interim was exacerbated by the broader market pullback amid the reemergence of the Covid-19 pandemic and NIO’s announcement to temporarily stall production for five working days, beginning March 29, citing the chip shortage. The company also trimmed its quarterly production forecast.
Although NIO stock came back up from the mid-May lows, the multiple rebound attempts could not take the stock anywhere near its previous peak. The weakness looks all the more glaring because most other EV stocks were on a strong recovery path after bottoming in mid-May.
Source: Charts by TradingView
“The vehicle delivery in October was significantly impacted by reduction in production volume as a result of the restructuring and upgrades of manufacturing lines and the preparation of new products introduction from September 28 to October 15, as well as certain supply chain volatilities.”
The Chinese EV maker forayed into Norway, marking its first overseas expansion, in 2021.
NIO Day 2021 Disappoints
As a dismal year drew to a close, NIO investors stayed loyal to the company and pinned their hopes on a turnaround, thanks to several impending catalysts. The main one of these catalysts, however, did not pan out as they would have liked.
As opposed to the 2020 event, Nio Day 2021 was light on announcements. The company announced its fifth production model – the ET5, a midsized sedan with a starting price of 328,000 yuan ($51,670). But barring the newest model, the annual affair just did not have much to write home about.
And now, the new year hasn’t started well for the financial markets, and Nio shares have been languishing along with the broader market.
How NIO Stock Fared Vs. Competition
NIO shares have been an underperformer relative to the competition since 2021. Domestic rivals such as XPeng (NYSE:XPEV), Li Auto (NASDAQ:LI) and BYD (OTCMKTS BYDDF) have all either recorded far smaller losses or managed modest gains in the same period. EV giant Tesla (NASDAQ:TSLA), despite the recent pullback, has been a standout performer.
|Company||Performance Since Jan. ’21 (% Change)|
EV startups such as Rivian (NASDAQ:RIVN), Lucid (NASDAQ:LCID) and Fisker (NASDAQ:FSR) have yet to generate any meaningful revenues. The market, however, has willingly assigned premium valuations to the stocks on the promise of future outperformance.
Many EV companies are still working on becoming profitable, after all, so a better valuation metric to evaluate these stocks will be the price-to-sales (P/S) ratio.
On a trailing-12-month basis (TTM), NIO’s P/S ratio is at 6.7 compared to 22.7 for Tesla, 16.4 for XPeng and 9.4 for Li Auto. Only Warren Buffett-backed BYD has a better TTM P/S ratio of 2.2.
As far as Tesla is concerned, one may argue that it has the potential to diversify its revenue streams due to the multiple areas it operates in. Tesla’s fiscal-year 2021 results reveal that 88% of the annual revenue came from its automotive business, while the rest was from its charging infrastructure and services. Analysts expect self-driving software revenue to be a major revenue earner when it finally is adopted on a large scale.
NIO’s recent quarterly results for the three months ended Sept. 30 show that a little over 88.1% came from its automotive business and the remainder from services. The Chinese company has been laying emphasis on its autonomous driving technology, named Nio Autonomous Driving (NAD). This was announced in January 2021 along with the unveiling of the ET7 sedan.
Just as it has done with battery swapping, the company plans to offer its Autonomous Driver Assistance System as a service offering for a monthly subscription fee.
Impending Catalysts for NIO Stock
Near term, NIO’s January deliveries number due on Feb. 1 could serve as a catalyst. Can the company see an uptick from the 10,489 vehicles it delivered in December? Notable deviation from the number is unlikely, given the company is delivering from the same pool of vehicle models as it did in the previous month. Given that the company has not sounded out any dragging factors, marked downside from the level is also unlikely.
Next up will be the company’s quarterly results, which are expected in early March. The earnings release, however, is likely to be a non-event.
What could truly move the needle on the stock are updates on the two new production models — the ET7 and ET5. The company has suggested a strong order book for the latter model, which is seen as a potent threat to Tesla’s best-selling Model 3 sedan.
Barring any hiccups in production and ramp of these models, Nio stock looks poised to stage a strong recovery in 2022. Added cushion is likely to come from the aggressive international expansion the company has charted out.
Optimistic forecasts about EV adoption in China as well as overseas is also a macro factor that could work in Nio’s favor, especially if it can sort out its production problem.
The Bottom Line on NIO Stock
NIO’s shares are trading at their lowest level since late 2020. Technically, for the stock to reverse course, it has to fill the gap made earlier this week and move above the $27.40 overhead resistance. Further up the $33-$34 area could serve as major resistance levels.
For those investors who are looking for a bargain EV value buy, NIO could be the best fit for their portfolios. The stock looks relatively cheap vis-à-vis the other publicly listed Chinese EV makers. Fundamentally too, NIO appears to have an edge over its domestic rivals in terms of its product lineup and service offerings.
With so many catalysts lined up, it appears that investors will soon come around to appreciate the true value that NIO stock offers and a rerating could be in the offing in the medium- to long-term.
On the date of publication, Shanthi Rexaline did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Shanthi is a contributor to InvestorPlace.com as well as a staff writer with Benzinga. Equipped with a Bachelor’s degree in Agriculture and an MBA with specialization in finance and marketing, she has about two decades of experience in financial reporting and analysis, and specializes in the biopharma and EV sectors.
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