- NIO's deliveries are projected to grow at a much faster rate in 2023 on the back of new vehicle model launches.
- But NIO's actual Q4 2023 vehicle margin might fall short of the company's management guidance due to higher than expected lithium carbonate prices.
- NIO stock's strong 2023 deliveries growth isn't sufficient to justify a positive re-rating of its shares, as I think that NIO's actual profit margins could be a disappointment for investors.
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I have a Hold rating awarded to NIO Inc.'s (NYSE:NIO) [9866:HK] shares.
With my prior January 5, 2023 write-up for NIO, I reviewed the company's deliveries data for the final quarter of the previous year. The focus of my latest update for NIO is the company's growth outlook in the next one year.
While I see NIO's deliveries growing significantly in 2023, I don't expect NIO to witness meaningful share price growth based on my forecast of weaker than expected profitability for the company. As such, I make the decision to leave my existing Hold rating for NIO unchanged.
NIO Stock Key Metrics
Before I assess NIO's prospects in the coming year, it is relevant to review the company's most recent quarterly and monthly metrics to set expectations for the future.
In my view, NIO's recent delivery numbers as indicated in a Q1 2023 press release issued on April 1 sent a mixed picture about its outlook.
On the positive side of things, NIO's deliveries grew by +21% YoY to 31,041 units in the first quarter of this year. The company's actual deliveries for Q1 2023 was still within its earlier guidance in the 31,000-33,000 units range.
On the negative side of things, the company's deliveries actually declined by -15% MoM (Month-on-Month) to 10,378 units in March 2023. NIO's performance for the previous month in terms of deliveries also weren't as good as the company's closest peers. As a comparison, deliveries for Li Auto (LI) and XPeng (XPEV) rose by +25% and +17% to 20,823 units and 7,002 units, respectively on a MoM basis in March this year.
NIO Stock Deliveries Outlook
NIO achieved deliveries amounting to 122,486 units for full year fiscal 2022, which was equivalent to a +34% YoY expansion. As mentioned in the preceding section, the company's deliveries increased by +21% YoY in the first quarter of this year.
Looking forward, I am of the view that NIO's delivery volume growth will accelerate going forward, thanks to new model launches.
At the company's Q4 2022 results briefing on March 1, 2023, NIO highlighted that it will "deliver five new products based on the NT2.0 technology platform" in 2023. These five new models to be launched this year are the new generation version of the "ES8, ES6, EC6" vehicles, the new "ET5 Touring" variant, and the all-new "smart electric flagship coupe SUV EC7." In contrast, NIO was just selling three vehicle models at the end of last year, namely, the ES7, the ET7, and the ET5.
A Brief Description Of NIO's Key Products
In an interview with Chinese media China Daily published on March 6, 2023, NIO's CEO William Li mentioned about his expectations that the company's deliveries "can be doubled this year." This is consistent with the CEO's comments at the earlier Q4 2022 results call on March 1 where he noted that the company is "confident that we can achieve our targets" in response to a question on NIO's 250,000 units deliveries guidance for FY 2023.
My prediction is that NIO's delivery volume could potentially jump by +80% YoY to 220,000 units in 2023, before rising by a normalized growth rate of +30% (comparable to 2022) to 287,000 units for 2024. I am more conservative than the company's management when it comes to NIO's delivery volume expectations for this year, as I think that Tesla's (TSLA) price cuts will allow it to gain share at the expense of its competitors in China. Notably, NIO has expressed its stance of not participating in price competition with TSLA as indicated in a recent April 18, 2023 Seeking Alpha News article, which might translate into a larger than expected market share loss and lower than expected volumes for NIO.
Nevertheless, I expect NIO's deliveries growth to accelerate in both the new fiscal year (FY 2023) and the next 12 months (Q2 2023 - Q1 2024) with the increase in the number of vehicle models from 3 to 8. But I don't think that a faster pace of delivery volume growth alone isn't sufficient to drive NIO's share price higher in the coming year.
NIO Stock Price Isn't Expected To Rise
In my opinion, NIO could potentially disappoint the market with regards to profitability, and this might limit the company's share price recovery even though its deliveries are expected to grow substantially in 2023.
In the March 6, 2023 China Daily news article referred to in the previous section, NIO's CEO guided for the company to "be profitable by the end of this year." At its fourth quarter results briefing in March, NIO also outlined its expectations of the company's vehicle margin expanding from 6.8% in Q4 2022 to 18%-20% for Q4 2023. I deem NIO's profitability guidance to be overly optimistic.
It is important to note that NIO's 18%-20% vehicle margin guidance for Q4 2023 is based on two critical assumptions.
The first key assumption is that NIO achieves its full-year fiscal 2023 deliveries guidance to enjoy the positive operating leverage effects of faster delivery volume/revenue growth, and a more favorable mix of high-margin new products. In the preceding section, I have already explained why I think that NIO's actual 2023 delivery volume will be lower than the company's guidance due to price competition from Tesla.
The second key assumption relates to a decline in the price of lithium carbonate to approximately RMB200,000 per metric ton or below by the final quarter of this year. It is always difficult to predict the price of any commodity, as there are multiple demand and supply factors which could influence the price movements of commodities. As a comparison, analysts from DBS Group Research have forecasted that lithium carbonate's price will end this year at RMB470,000 per metric ton based on its projections that "only half of the pre-commissioned (lithium) projects will commence over the next six months."
NIO Isn't The EV Stock To Buy In 2023
It will take both delivery volume acceleration and vehicle margin expansion for NIO's share price to grow in the coming one year. Although I view a substantial growth in vehicles deliveries as highly probable, I am not as confident about NIO's profitability outlook. In that respect, I maintain my Neutral view and Hold rating for the stock.
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