The electric vehicle (EV) stock has reached a 52-week low and is currently available at an exceptionally low price. However, it’s vital to consider several key factors before making any investment decisions.
After witnessing a 12% rally in Nio (NIO -10.16%) stock by the 18th of last month, many investors believed that shares of this prominent electric vehicle manufacturer had hit their lowest point. Unfortunately, their optimism was short-lived as Nio stock reversed course, plunging to a 52-week low and ultimately closing March down by 17.7%, according to data compiled by S&P Global Market Intelligence.
Understanding the Factors Behind Nio Stock’s Decline
The recent decline in Nio stock can be attributed to a combination of factors, including a decrease in vehicle deliveries, escalating financial losses, and a significant share sale that contributed to the stock’s downward trajectory. The delivery figures released by Nio on March 1 presented a mixed outlook. While the company experienced a remarkable 62% year-over-year increase in deliveries for February, there was a concerning 4.8% sequential decline.
Interestingly, Nio’s flagship brand saw a 15% rise in deliveries compared to January. However, this positive development was overshadowed by a dramatic 32% decrease in deliveries from its mass-market sub-brand, Onvo, during the same period. Just days later, Nio disclosed a staggering net loss of $974 million for its fourth quarter, representing a 33% increase year-over-year, despite a 13% growth in vehicle sales.
While Nio’s gross margin did see an improvement, rising to 11.7% in Q4 from 7.5% in the previous year, the company’s higher operating expenses significantly impacted its profitability. The increase in costs was primarily due to heightened spending on marketing, promoting new vehicle models, and expanding its sales network.
Furthermore, Nio’s stock faced additional pressure following an announcement made at the end of March. The company revealed intentions to issue approximately 136.8 million shares in offshore transactions at a price of 29.46 Hong Kong dollars per share. This price represented a steep 9.5% discount compared to the prior day’s closing price on the Hong Kong stock exchange, prompting Nio stock to plummet to a 52-week low of $3.57 on March 31.
Future Prospects and Growth Opportunities for Nio Stock
Nio is placing significant bets on its sub-brands as a strategy for future growth. The Onvo sub-brand commenced deliveries of its inaugural model, the L60 SUV, in September 2024 and is gearing up to introduce its second model, the L90, in the upcoming weeks. Although Onvo’s deliveries took a hit in March, it’s prudent to observe trends over the next few quarters, especially considering that the period surrounding the Chinese New Year is typically a seasonally weak time for automobile sales. Meanwhile, Nio’s second sub-brand, Firefly, is set to launch its first model—a compact hatchback—on April 19.
Nio’s outlook remains promising, as the company anticipates delivering between 41,000 and 43,000 vehicles in the first quarter. This projection indicates a potential year-over-year growth of approximately 36% to 43%. Additionally, the revenue guidance for Q1 suggests a possible growth rate of around 23% to 30% compared to the previous year.
Currently, Nio’s stock is trading at one of its lowest price-to-sales ratios ever, presenting a potentially attractive buying opportunity. However, it’s crucial to monitor the company’s financial health and cost management closely, as these factors will heavily influence the stock’s trajectory moving forward. Nio has indicated that the funds raised from the share sale will be allocated towards research and development of new EV technologies and products, as well as strengthening its balance sheet. Attention should particularly focus on this financial strategy, as Nio is experiencing cash burn, although its current assets have been reported to exceed its current liabilities as of the end of the fourth quarter.
Neha Chamaria holds no positions in any of the stocks mentioned. The Motley Fool also has no positions in any of the stocks discussed. For further details, please refer to the Motley Fool’s disclosure policy.
