I recently compared investing in NIO (NYSE:NIO) stock to catching a falling knife. I, personally, wasn’t confident that the electric vehicle (EV) manufacturer would be able to turn things around after having lost more than 90% of its value since 2021. So, is this uptick the start of something big?
A strong April
There’s actually a lot of data for the electric car industry. In addition to quarterly reports, companies report monthly deliveries, giving us insights into how the business is performing.
NIO has been underdelivering on promised sales growth for some time. So, April’s deliveries came as something of a surprise. The company delivered 15,620 vehicles in April, up a solid 134% versus a year ago.
This was driven by the launch of the company’s 2024 series, including updated versions of the ES8, ES6, EC7, EC6, and ET5T.
What’s more, this sales growth came as its peers slowed down. Li Auto — still my favourite Chinese EV pick — saw sales slow to 25,787 vehicles, up just 0.41% versus last year. Xpeng‘s sales were up 32% versus last April.
However, one data point does not make a trend. Deliveries were up up 31.6% from March.
What should we make of the figures?
It’s great to see deliveries picking up, but NIO isn’t setting the world alight. If NIO were able to maintain this production rate throughout the year, it would deliver 180,000 cars. That’s just 20,000 more than last year. It remains unclear whether deliveries will pick up from here, or whether they will regress to where they were in Q1.
The data suggests that NIO needs to be hitting much greater volumes to start turning a profit. As noted, NIO sold only around 160,000 vehicles in 2024 and lost about $35,000 a car. By comparison, Li Auto delivered 376,030 and turned a profit. After years of underdelivering, there’s some distance between NIO and its peers.
Profitability seems as far away today as it did a few years ago. Its initial goal of profitability by 2024 seems to have been pushed back by at least two years. If all goes according to plan, we might see NIO reach the black in 2027.
The bottom line on NIO
NIO is currently trading at 24 times projected earnings for 2027 — that’s the breakeven year. That concerns me because a lot can go wrong in three years.
And why would I pay 24 times projected earnings, for 2027, for NIO stock when I could pay 17.1 times 2024 earnings for Li Auto? I appreciate that’s not a perfect comparison, but it highlights some of the risks of investing in NIO.
Moreover, NIO’s unique selling point is its battery-swapping technology, and I’m no longer convinced this is the way forward for the EV industry. Drivers of NIO vehicles can pull up at NIO swapping stations and receive a new battery in a few minutes.
But charging technology is getting better and better. The new Li Auto Mega can be charged in just 12 minutes and doesn’t need its own infrastructure.
NIO might continue its gains if sales kick on in May, but I’m not convinced about its long-term trajectory.
