Chinese luxury electric vehicle maker Nio had a very challenging 2022, with its stock falling by more than 70% over the course of the year. Several factors weighed on the stock, including ongoing supply chain issues due to Covid restrictions, and concerns about a slowdown in China due to debt issues in the over-leveraged real estate sector. In addition, the recent spike in Omicron’s novel coronavirus variant in many major Chinese cities has also weighed on the EV sector in the country. While Nio has been something of a leader in the premium EV space in China, it has now lagged behind its rival Li Auto. While Nio delivered a total of 122,000 vehicles in 2022, Li Auto delivered about 133,000 vehicles. There have also been concerns about demand for electric cars in general, with whistleblower Tesla aggressively discounting some of its models in both the US and China and this has also weighed on stocks like Nio.
Nio’s fundamental performance has been quite strong over the past few months. In the fourth quarter, the number of deliveries amounted to 40,052, 60% more than last year. This was also well above the average 27,000 vehicles it delivered over the past three quarters. Nio is also increasingly focusing on the European market. While entering Norway in 2021, the company entered the European market with the launch of the ET7, EL7 and ET5 models and this could help the company generate additional volumes. In addition, while China is currently seeing a rise in Covid-19 cases, the easing of zero-Covid policies in 2023 should be positive for the economy, potentially helping auto stocks like Nio. We also think Nio’s valuation remains attractive. The stock is currently trading at about 2x estimated 2022 earnings, which is well below Tesla (5x) and Li Auto (3x). See our analysis of Nio, Xpeng & Li Auto: How Do Chinese EV Stocks Compare? for a detailed look at how Nio stock compares to its rivals Li Auto and Xpeng.
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