Nio (NYSE: NIO) divulged its first-quarter earnings report on June 6. The Chinese electric vehicle (EV) manufacturer witnessed a 7% decline in revenue year over year, amounting to 9.91 billion yuan ($1.37 billion). This discrepancy from analysts’ projections, missing by 520 million yuan, piqued market unease. Nio’s adjusted net loss swelled from 4.15 billion yuan to 4.9 billion yuan ($679 million), translating to 2.39 yuan ($0.33) per American depositary receipt (ADR) – a stark miss of 0.19 yuan against the consensus estimate.

Nio’s investors bore the brunt of this disappointing revelation, with the stock plummeting by nearly 7%. The company now finds itself submerged over 20% below its IPO price. In spite of such adversity, the question lingers – should investors veer off the beaten path and view this decline as an opportunity, while traditional enthusiasts remain oblivious?

Image source: Nio.

The Evolution of Nio: A Saga of Triumphs and Troubles

Nio, upon its September 2018 IPO, served as a beacon of hope as an esteemed player in the EV market. Distinguishing itself with a diverse portfolio of electric sedans and SUVs, Nio’s innovation in battery-swap technology set it apart. This strategy alleviated the extended charging periods that have long plagued conventional EVs.

The allure of Nio was unmistakable as deliveries surged by 81% in 2019, followed by jumps of 113% in 2020 and 109% in 2021. Its stock rode this wave of optimism, ascending over tenfold from its IPO price of $6.26 per ADR to a zenith of $62.84 on February 9, 2021.

Yet, shadows loomed on the horizon as Nio faced hurdles with its supply chain, weather-induced disruptions, macroeconomic fluctuations in China, and an industry-wide pricing battle. Consequently, delivery rates dwindled to a 34% rise in 2022 and a 31% climb in 2023. Compounded by eroding vehicle margins from 20.2% (2021) to 9.5% (2023), Nio grappled with diminishing pricing leverage and heightened expenses, encapsulating its harrowing journey.

The Impending Cyclical Rebirth of Nio

The first quarter marked a challenging chapter for Nio, witnessing a 40% sequential and 3% year-over-year plunge in deliveries, a stark contrast from the growth momentum in the latter half of 2023. Concurrently, a contraction in vehicle margins unfolded, painting a grim picture.

Data source: Nio. YOY = year over year.

Nio anticipates a delivery resurgence in the second quarter, buoyed by its stellar performance in April and May. The company envisions a robust 130% to 138% year-over-year surge in total deliveries to 54,000 to 56,000 vehicles for the entire quarter. Furthermore, a predicted revenue upswing of 89% to 95% year over year is on the horizon.

The imminent revival is attributed to Nio’s premium branding, the competitive prowess of its battery-swap ecosystem, the rollout of its ET7 Executive Edition sedan, and the launch of its budget-friendly Onvo smart vehicle brand. CEO William Li’s conviction in these drivers shaping the “next phase of high-quality growth” aligns with analyst forecasts of a 20% revenue upturn to 66.8 billion yuan ($9.2 billion) for the full fiscal year.

Thriving Amidst Margin Conundrums

Despite encouraging projections, Nio faces the uphill task of fortifying its vehicle margins amidst external pressures. Rivals such as Tesla, entwined in aggressive price cuts, underscore the need for Nio to bolster its margins. Accompanying this challenge are escalating operational expenses as Nio embarks on new vehicle developments, expansion of its battery-swapping network, and establishment of new European stores. Notably, the introduction of its premium Android smartphone in the previous year further strains its financial resilience. The shift from a negative adjusted operating margin of 42.5% (Q1 2023) to 51.6% (Q1 2024) is symptomatic of this predicament.

On a generally accepted accounting principles (GAAP) basis, Nio’s net loss swelled year over year from 4.74 billion yuan to 5.18 billion yuan ($718 million) in the first quarter. Analyst consensus expects a narrow net loss reduction from 21.2 billion yuan (2023) to 18.5 billion yuan ($2.55 billion) in 2024. Despite these trials, Nio boasts total liquidity of 45.3 billion yuan ($6.3 billion), safeguarding it from imminent insolvency.

Deciphering the Right Window for Nio Investment

With an enterprise value of 70.4 billion yuan ($9.7 billion), Nio’s stock espouses an attractive price-to-sales ratio of 1. Nevertheless, this discount might persist until Nio rectifies its delivery and margin woes, amidst a revitalization of the EV landscape and amelioration of U.S.-China geopolitical tensions that cast a shadow over Chinese equities.

For investors who foresee these tides turning in Nio’s favor, accumulating its stock might present a savvy move as contrarians seize the reins. Nonetheless, the prevailing landscape paints Nio as a speculative venture, potentially meandering through a few more turbulent years before basking in the glow of alleviated constraints.

Contemplating a $1,000 Investment in Nio

Prior to embarking on a Nio stock purchase, cautious evaluation is prudent:

The Motley Fool Stock Advisor elite, discerning great promise, unveiled what they believe are the most compelling opportunities in the market today. Embrace this wisdom judiciously before deciding to navigate the tempestuous waters encompassing Nio.

The Rise of Stock Advisor: Unveiling the Top Stock Picks That Surpassed Nio