Investors in Nio (NYSE: NIO) are likely pondering where the stock’s bottom lies amid its recent downturn. March saw a notable 21.7% plunge in shares, according to data from S&P Global Market Intelligence. Year-to-date, the stock is down 47% as of the latest update.
Why Nio stock fell so much
Nio faced a challenging start to March following its fourth-quarter and full-year 2023 financial results, which failed to meet investor expectations. Despite a 25% year-over-year increase in fourth-quarter deliveries to 50,045 units, there was a 9.7% sequential decline. While full-year deliveries grew by approximately 31% compared to 2022, the gross margin dropped to 5.5% from the previous year’s 10.4%, resulting in a net loss surge of almost 44% to $2.9 billion in 2023.
Investor confidence waned further due to concerns about a slowdown in the global EV market, leading to a significant stock plunge following the earnings report. Additionally, several analysts revised their price targets downward for Nio, adding to the pressure on the EV stock. The situation worsened later in March when Nio reduced its delivery guidance for the first quarter to 30,000 units, down from its initial projection of 31,000 to 33,000 vehicles.
Why Nio stock could rebound
Investors often react unfavorably to guidance cuts, but in this instance, they might be overreacting. January and February typically see lower car sales in China due to seasonal factors, which could have influenced Nio’s decision to revise its first-quarter delivery projections. Moreover, similar adjustments were made by Chinese competitor Li Auto.
Nio’s recent production and delivery disruptions can also be attributed to its transition to a new platform and upgrades to its models. However, the company managed to deliver 30,053 units in the first quarter, with March showing promising growth—a 14% year-over-year increase and a remarkable 46% jump from February. Furthermore, the introduction of five 2024 models in March, with three more expected in the second quarter, holds potential for increased sales.
Nio is diversifying its offerings by launching its first mass-market brand, Onvo (known as “Alps” in Chinese), which will compete directly with Tesla’s Model Y. Additionally, the revamped battery-as-a-service (BaaS) program aims to enhance the attractiveness of Nio’s cars to buyers amid intensifying competition. Under BaaS, customers have the option to purchase Nio vehicles without batteries at a reduced price and rent the batteries separately—a strategy that gives Nio a competitive edge.
While sales are facing pressure due to industry-wide challenges and pricing wars, Nio anticipates margin improvements starting from the second quarter, driven by cost reductions and higher volumes. If this projection materializes, it could mark a turning point for this undervalued EV stock.
