Source: Beast Finance Author: Beast Finance
NIO's fourth-quarter 2022 results were "very disappointing," with both revenue and earnings missing expectations, despite its home-court advantage in China. Its rival Xpeng Motors (XPEV) has run into similar problems, with more disappointing financial results and delivery figures than NIO. Unlike Xiaopeng Motors, Nio's deliveries increased by 60% year-on-year in the fourth quarter of 2022, reaching 40,052 vehicles.
Boldbeast Finance believes that in a difficult environment, the market can pick out poor-performing companies and excellent companies, and NIO is still performing strongly overall.
In addition, Nio may have an advantage over Tesla (TSLA) in terms of battery supply, as CATL, the world's largest electric vehicle battery maker, is offering battery supply discounts to Chinese EV manufacturers such as Nio, but a report That may not include Tesla, despite Tesla having a Gigafactory in Shanghai, the report said.
As such, we think NIO could be an "exciting" investment in the long run.
In this article, Boldbeast Finance will comprehensively analyze the short-term and long-term investment value of NIO by analyzing NIO's financial performance, profit margin, valuation and forecast, risks faced, balance sheet and other aspects.
Financial Results for the Fourth Quarter of 2022
In the fourth quarter of 2022, Nio's revenue was US$2.34 billion, which was US$216 million lower than analysts' forecast despite an increase of about 62.2% year-on-year. Ironically, only companies like Nio (and possibly Tesla) would be considered "underperformers" despite strong overall growth, so we need to be optimistic as analysts There has been tremendous optimism about NIO before.
In the fourth quarter of 2022, Nio's deliveries increased by 60% year-on-year and 26.7% quarter-on-quarter to 40,052 units, a positive sign that Nio continues to grow even in a difficult economic environment . It's worth noting, however, that its auto revenue grew at a slightly slower pace (23.7% quarter-on-quarter), which we believe is mainly due to unfavorable pricing for the ET5 model.
On the positive side, Nio's February delivery figures were excellent, up 98% year-on-year to 12,000 vehicles. At this rate, Boldbeast Finance predicts that Weilai will achieve at least 30% growth in 2023.
Margins are under pressure
NIO is facing significant margin pressure in the fourth quarter of 2022. Its gross profit plummeted 64.4% year-on-year to $90.1 million (621.8 million yuan). This was mainly due to a sharp increase in cost of sales of 88.3% to $2.24 billion in the fourth quarter of last year and an increase in inventory reserves, as well as an unfavorable loss of $143 million in sales of older generation models (ES6, EC6 and ES8) as new models hit the market. caused by the dollar. The introduction of new models has also resulted in higher manufacturing costs, which management forecasts will continue through the first quarter of 2023 before starting to diminish in the second quarter of 2023.
Rising battery costs are also putting pressure on Nio's profit margins. According to a Bloomberg study, the price of lithium-ion batteries has risen from $141/kWh in 2021 to $151/kWh in 2022, an increase of about 7%. This will of course increase input costs for EV companies such as Nio, and is likely driven by rising raw material costs. However, it is clear from the graph below that the rising trend of battery costs is decreasing (starting from $713/kWh in 2013), so we believe that the rising trend of battery costs is only short-term. From another perspective, this trend is also only slightly higher than the $150/kWh in 2020.
Source: Bloomberg NIO
also incurred an operating loss in the fourth quarter of 2022, a year-on-year increase of 175.5%, and the loss reached US$976.7 million (approximately RMB 773.61 million). On the positive side, more than half of the expense was due to increased R&D expenses, which we don't see as a bad thing. Because Weilai's revenue in the fourth quarter of 2022 has reached 2.34 billion US dollars, a year-on-year increase of 62.2%.
But as Nio continues to develop its NT2.0 technology platform and transfers all its models to this platform, including five new models under development/release, Boldbeast Finance expects it will also incur higher R&D expenses.
Valuation and Forecast
To assess NIO's valuation, we have incorporated its latest financial data into our discounted cash flow model. In the model, we forecast NIO's full-year revenue growth rate of 30% in 2023. That's still conservative, as the company's previous revenue growth rate in the fourth quarter of 2022 exceeded 62%. Additionally, management forecasts deliveries of 200,000 vehicles in 2023, a 63% increase from the 122,486 delivered in 2022. In this regard, we have been very cautious. According to our statistics on NIO's delivery volume in February, NIO's delivery volume has accelerated throughout the year. Continued growth in sedan sales, as well as the launch of two new models in the second quarter, should help Nio surge deliveries to close to 30,000 by the end of the year (in an optimistic scenario).
From the second to the fifth year, we predict that Weilai's revenue will grow at a rate of 55% per year. Nio's sales will also continue to grow as new models gain greater traction. Nio's previous deliveries, while affected by supply chain challenges, are likely to ease now that China has fully lifted virus restrictions. The company also plans to roll out another 1,000 swap stations in 2023. Therefore, this should also help boost NIO's sales in third- and fourth-tier cities. Interestingly, NIO's sales mainly come from Shanghai and Chuzhou (about 50%), so as it expands in other cities, its future growth should also accelerate.
Improving profit margins will be Nio's biggest challenge. Our forecast for Nio's 10% profit margin over the next eight years may seem optimistic, but it is far below Tesla's 16.81% profit margin in 2022. But we don't believe Nio will reach Tesla's margins because it doesn't have the scale or vertical integration advantages. However, we believe its margins will improve as the development of the NT2.0 platform is completed, and it will benefit from the roughly 20% discount on batteries offered by CATL to Chinese OEMs. A report pointed out that Tesla may not be eligible for this benefit, considering that CATL has supplied about 37% of the world's electric vehicle batteries in 2022, this favorable supply and discount is very good for NIO anyway. advantageous.
Nio also has a solid balance sheet with $5.66 billion in cash and short-term investments. Also, the company's total debt is about $3.4 billion, of which $1.58 billion is long-term debt, so it's manageable.
Based on these forecasts, we calculate that NIO's fair value is approximately $14.21 per share, and NIO's stock price is approximately $10.510 per share as of this writing, making it 38.41% undervalued.
Compared to other EV companies in China, NIO also has a cheaper price-to-sales ratio than its competitors (currently at 1.19).
Risks
The Chinese EV market is highly competitive and this is one of the major risks facing NIO, which includes companies such as Tesla and BYD, two of the largest EV companies in the world with massive scale advantages and vertical integration advantages. In addition, there are smaller competitors such as Xiaopeng Motors and Li Auto, which are also fiercely competing with Nio.
in conclusion
Nio is a standout EV maker with some differentiators in the market, such as battery-swappable capabilities and a "luxury" brand positioning. While the company faced challenges in the fourth quarter of 2022, it was mostly due to short-term issues. Advancing battery discounts and easing supply chain issues should help Nio improve margins, while the launch of its new models should also help boost its sales. Our valuation model and forecasts also suggest that NIO is undervalued.