What To Make Of NIO's (NYSE: NIO) Numbers

Shares of electric vehicle (EV) maker NIO (NYSE: NIO) have been under pressure since the company reported their Q3 earnings after the bell on Tuesday. Considering they had rallied 30% since early October, investors were clearly expecting big things, but the 10% drop since the release tells us they were more than a little disappointed. 
From a high level at least, the numbers did look good initially. Revenue was up close to 130% on the year, an impressive feat for any business, and well ahead of what analysts had been expecting. However, the devil was in the details, and by the time readers had made their way to the earnings per share figure, it was clear that NIO’s shares were only ever going to move in one direction, this week at least. Specifically, GAAP EPS was well below the consensus, coming in at -$0.28, when analysts had been looking for -$0.10. 

Bullish Comments

Despite the miss, NIO’s CEO still struck a bullish tone with his comments on the earnings call. William Bin Li, founder and chairman as well as CEO, said “we achieved another all-time high quarterly delivery of 24,439 for the third quarter of 2021, representing a solid growth of 100.2% year-over-year. Our demand continues to be strong and our new orders reached a new record high in October. Despite the continued supply chain volatilities, our teams and partners are working closely together to secure the supply and production for the fourth quarter of 2021. Meanwhile, we are fully dedicated to accelerating our products and technologies development and bringing the three new products based on NIO Technology Platform 2.0 to users in 2022 to lead the smart EV transformation and adoption”. 

This is all good stuff to hear for those of us with a long enough time horizon. The EV market is still in its infancy, and with 130% year over year growth in revenue, NIO is clearly doing something right. There’s no doubt that near term headwinds exist in the form of supply chain constraints, but again, that’s a supply issue rather than a demand issue, and won’t be here forever. CFO Steven Wei Feng alluded to management’s longer term focus when he noted “as we broaden our user base and enter global new markets, we are determined to further expand our sales and service network and expedite the swapping and charging infrastructure deployment to better reach and serve more users worldwide.”

However, despite all this positivity and momentum, there’s no doubt that NIO shares have been underperforming their peer group this year. They’re currently down 25% on the year, while the likes of Tesla (NASDAQ: TSLA) is up 50%. But perhaps this is where the opportunity lies. The folks over at Deutsche Bank were out with a bullish call last week, calling NIO stock a “catalyst call buy idea" on the basis of this underperformance. 

Catch Up Play

Deutsche analyst Edison Yu noted that while NIO shares have “materially underperformed” against their peer group, they have more than enough catalysts on the horizon to jump start a potential catch-up move. One of these was the company’s Q3 earnings, which as we’ve seen were disappointing for the near term, but hold a lot of promise for the longer term. Fresh monthly delivery numbers should add some fuel to the fire, as should the company’s investor day this December, where new products and tech are due to be unveiled. 

Indeed, this impression that NIO is a bit of a sleeping giant was one shared by the folks over at Goldman Sachs last month upped their rating on the stock from a Neutral to a Buy. They also gave NIO shares a fresh price target of $56, which after this week’s dip suggests there’s upside in the region of 40% to be had from current levels. 

This move by Goldman was driven in a large part by the way NIO has been positioning their ET7 model in the same class as the Mercedes S-class and the BMW 7 series. Goldman also pointed to December’s upcoming NIO Day as a favorable catalyst for investors to look forward to. What that means for those of us on the sidelines, is that NIO’s longer term potential still holds true, and that these near term headwinds are affording us a potentially excellent entry opportunity.