Yesterday, China’s government pledged proactive fiscal measures and looser monetary policy for 2025 during a high-profile meeting led by President Xi Jinping. The world’s second-largest economy will focus on boosting domestic consumption and stabilizing the property market through “unconventional counter-cyclical” adjustments.
China’s consumer inflation in November fell to a five-month low of 0.2% due to sluggish consumer demand, a housing market downturn, and an uncertain macroeconomy. Beijing now expects to maintain its GDP growth target at 5% for the upcoming year.
Soon after the fiscal measures were announced, the Hang Sang Index ended almost 3% higher yesterday, while the Chinese yuan strengthened against the U.S. dollar. As Chinese stocks are getting a significant economic boost, let’s see if it's time to buy Nio (NIO) stock right now.
Is NIO Stock a Good Buy?
Valued at a market cap of $8.9 billion, Nio is a Chinese electric vehicle manufacturer that produces smart electric SUVs and sedans. In addition to vehicle manufacturing, Nio provides comprehensive energy solutions, including home charging, battery swapping, fast charging stations, and mobile charging services.
The company offers a complete ecosystem of services, including maintenance, insurance, roadside assistance, and financing options. The company also operates a used vehicle certification program focusing on technology development for e-powertrains and battery systems.
While Nio sells most of its vehicles in China, it is expanding into other international markets, such as Europe. The company has increased its sales from $719.8 million in 2018 to $7.78 billion in 2023. In the last 12 months, its sales have risen by 15.7% year over year to $8.7 billion. However, rising competition and tepid consumer demand have impacted its profitability, and its gross margins have narrowed to 8.7% in the past year, down from almost 19% in 2021. Its operating losses have also widened to $3 billion in the last 12 months, from $700 million in 2020.
Nio continues to expand its manufacturing capabilities, which will eventually allow it to benefit from economies of scale. Despite Nio’s strong revenue growth, its inability to improve the bottom line has meant the China-based EV stock currently trades 92% below all-time highs.
How Did NIO Perform in Q3 2024?
Nio’s revenue fell 2% year-over-year to $2.66 billion in the third quarter, missing consensus estimates by $66 million. Its net loss widened to $721 million, or $0.31 per share, missing estimates for a loss of $0.04 per share.
However, its gross margins expanded to 10.7% in Q3, up from 8% last year, while vehicle margins increased to 13.1% from 11% in this period. Nio improved its profit margins in Q3 due to a combination of cost savings and lower material prices.
The company reported record quarterly deliveries of 61,855 in Q3. The company claimed it enjoys a 48% share in China’s premium battery electric vehicle (BEV) segment for vehicles priced over $42,000. Nio expects to end Q4 with 72,000 to 75,000 vehicle deliveries.
Nio successfully launched the ONVO brand in September and expects to expand monthly production of the EV to 10,000 units in December and 20,000 units by March. The upcoming Firefly brand will launch by the end of the year and target the compact car market, with product deliveries planned in the first half of 2025.
The company ended Q3 with close to $6 billion in cash, providing it with enough liquidity to support its cash burn rate for the next two years. The company’s Q3 results suggest that Nio is executing its multi-brand strategy well while maintaining a strong market position in premium segments. However, profitability remains a challenge with continued operating losses.
Is NIO Stock Undervalued?
Analysts expect Nio to end 2024 with sales of $9.6 billion, which suggests it trades a forward price-sales multiple of 1.15x, which is not too expensive for a growth company.
The company has set a vehicle margin target of 15% in Q4 and expects to maintain these margins over the next 12 months due to higher sales of premium vehicles. Its gross margins are expected to rise to 20% once the company optimizes its supply chain and marketing strategies. Alternatively, the threat of tariff hikes in the U.S. and other markets could lead to lower demand and weigh on vehicle deliveries in the near term.
NIO stock might seem undervalued, but it remains a high-risk investment due to its weak financials and rising competition. Out of the 15 analysts covering NIO stock, three recommend “Strong Buy,” two recommend “Moderate Buy,” eight recommend “Hold,” and two recommend “Strong Sell.” The average target price for NIO stock is $5.82, 22% higher than the current trading price.
