Chinese car manufacturer Nio (NYSE:NIO) has several strengths, including its innovative battery exchange program, significant sales growth and imminent expansion into several foreign markets. Yet NIO stock is down 50% in the past year.
That may be because in the past few months the company’s sales growth and financial results have not been so impressive. Or maybe it’s because the electric vehicle maker faces extremely tough competition from Xpeng (NYSE:XPEV), Li Auto (NASDAQ:LI) and You’re here (NASDAQ:TSLA). Nio also appears to be significantly behind a number of its rivals when it comes to self-driving.
High prices and fierce competition
One thing that could hold Nio back from moving forward is the relatively high price of its vehicles. Base prices for Nio’s line of electric vehicles range from around $50,000 to around $70,000. Add extras and customization and they can cost upwards of $80,000.
NIO’s latest model, the ET7, will cost customers around $68,710 and $77,640 depending on which battery they choose. And that’s after factoring in EV subsidies from the Chinese government.
For comparison, Xpeng’s after-subsidy base prices range from $23,000 to $36,000, while Tesla’s cheapest Model 3 starts at around $40,000.
Nio also faces great competition at the high end of the EV market from some famous and reputable brands including BMW (OTC:BMWYY), Audi, lincoln and mercedes.
In China, where incomes are generally lower than those in the United States and Western Europe, cheaper electric vehicles have a much better chance of becoming bestsellers than their more expensive counterparts. Ultimately, selling millions of electric vehicles with, say, a 20% gross margin will prove more profitable than selling a few hundred thousand vehicles with, say, a 40% gross margin.
Nio seems to be falling behind in self-driving
It looks like Nio is well behind Xpeng and Tesla when it comes to self-driving. Last month, Barron reported, “NIO Autonomous Driving or NAD as the company calls it, will maintain driving speeds and do some steering, but drivers should always pay attention to the road at all times.” Doesn’t seem so “self-contained” to me.
Meanwhile, in October, Xpeng released its Xpilot 3.5 version of its advanced driver assistance system. “The system allows Xpeng’s cars to change lanes, speed up or slow down, or overtake cars and enter and exit freeways,” according to CNBC.
And in November, Tesla began offering its improved Autopilot system in China to select customers. According to Inside electric vehiclesAmong the features offered by Tesla’s system are “Summon, Autopark, Auto Lane Change, and most importantly, Navigate on Autopilot.”
You don’t have to be an expert in autonomous vehicles to see that Nio is behind Xpeng and Tesla in this area by a significant margin.
Disappointing sales growth and financial results
For December, Nio said its shipments were up nearly 50% year-over-year to 10,489 EVs. That’s not terrible, but it was down from 10,878 deliveries the previous month and a marked slowdown from November’s 106% year-over-year growth.
It also paled in comparison to its competitors’ December growth. XPeng delivered 16,000 vehicles in December, up 181% from a year ago and 2.5% from November. And Li Auto saw deliveries hit 14,087 in December, up 4.5% from November and 130% year-on-year.
Nio is expected to release its fourth quarter results next month. Management’s most recent forecast, released in November, of $1.46 billion to $1.56 billion, was lower than analyst estimates of $1.75 billion. Consensus has since lowered its forecast, predicting that Nio will earn $1.53 billion. That represents 49.5% year-over-year growth, while annual revenue is expected to rise 120% to $5.62 billion.
If the company fails to meet or beat these numbers, NIO shares could sell off sharply.
The bottom line on Nio Stock
Nio faces fierce competition in the Chinese EV market and appears to be lagging behind its competitors in terms of growth. The high price of Nio’s vehicles compared to some of its competitors and its relatively slow progress in self-driving technologies could cost the company its edge.
Shares are currently trading at five times analysts’ average earnings estimate for 2022, which may prove too optimistic. Stock NIO isn’t expensive for an EV name, but it isn’t cheap either. And that valuation appears to be driving significant sales growth for the automaker, both at home and abroad.
I recommend investors avoid NIO stocks at this point.
As of the date of publication, Larry Ramer held a long position in XPEV stock. The opinions expressed in this article are those of the author, subject to the publication guidelines of InvestorPlace.com.
Larry Ramer has researched and written about US stocks for 13 years. He was employed by The Fly and Israel’s largest business newspaper, Globes. Larry started writing columns for InvestorPlace in 2015. Some of his highly successful contrarian picks include GE, solar stocks and Snap. You can reach him on StockTwits at @larryramer.