NIO - will Chinese Tesla bounce back from the bottom?
If you hold NIO stock in your portfolio for the long term, it's probably not your best position. The stock is down nearly 20% since its IPO in 2018, 15% since the beginning of this year, and 10% in the last month. Looking at the long-term chart, however, you can see a huge spike in early 2021, when the frenzy over the Tesla automaker propelled NIO to an all-time high. Since then, however, it has been more in favour of speculators on the downside. NIO stock hasn't even been helped by the return of risk-on sentiment to the markets so far this year. The stock has also not reacted too positively to the reopening of the Chinese economy and is currently hovering very close to its yearly low. What is the reason for this?
The economic results for the last quarter of last year were literally tragic. The loss was more than twice as big as the market expected, and sales also fell short of expectations. We have become accustomed in recent years to some growth companies enjoying investor favour despite mounting losses. But the word growth is key here. NIO's revenue for the quarter was $2.33 billion, the market was expecting $2.5 billion. If there's one thing the market doesn't like, it's a weak outlook. For the first quarter of the year, NIO was expected to deliver between 31,000 and 33,000 vehicles. However, during January and February it delivered only 20,000, so during March the carmaker definitely had some catching up to do. Moreover, NIO delivered 40,000 cars during Q4, so the quarter-on-quarter decline is likely to be significant.
NIO shares on the MT4 platform on the H4 timeframe along with the 50 and 100 day moving averages
Chinese stocks were at least helped by positive data from the domestic economy during the turn of the year, but the April manufacturing PMI was surprisingly disappointing. It came in at just 49.2, a significant drop compared to March's 51.9. Thus, even Chinese manufacturing and hence demand may not be as glorious this year as expected. We should hear the Q1 economic results in early June, but the exact date is not yet confirmed. Given the carmaker's struggles to tame mounting losses and increase sales, it is possible that results will remain under pressure. Thus, the USD 14 billion capitalization may still look quite optimistic. Moreover, NIO's cars tend to be more premium, and with the threat of a global recession, demand may fall further. In addition, Tesla is a major competitor and has already discounted its cars for the Chinese market several times.