Why Nio shares are sinking even lower today

What happened

After a sharp drop on Thursday, shares of child (LITTLE BOY -3.61%) they were down another 4.8% as of noon Friday ET.

Investors are unhappy with the latest quarterly numbers from the electric vehicle (EV) maker, analysts are slashing their price targets on its stock and, more broadly, growth stocks are tumbling Friday on news that US inflation just hit a 40-year high in May.

And that

The news on inflation is particularly bad for growth stocks like Nio, as both high inflation and higher interest rates with which the Federal Reserve will fight it increase the cost of doing business, making it harder for growth. those companies.

Multiple analysts downgraded Nio following its disappointing first quarter earnings release on Thursday.

Tim Hsiao’s Morgan Stanley cut Nio’s share price target from $34 to $31 per share due to the electric vehicle company’s lower margins.

Nio reported lower vehicle margins and gross margins for the quarter, with management blaming two factors in particular: higher battery costs and lower realized average selling prices for its vehicles.

Mizuho Values Analyst Vijay Rakesh also cut his price target on Nio on Friday morning, though at $55 a share, it’s still significantly higher than Morgan Stanley’s Hsiao target.

Now what

Perhaps what worried investors more than Nio’s first-quarter numbers was management’s outlook for the second quarter: The company expects vehicle deliveries to rise 5% to 14% year-over-year to reach between 23,000 and 25,000 vehicles, and forecasts revenue growth of 10.6% to 19.4%. % range. While that means Nio will continue to grow, investors had expected a faster pace of growth given how intensely competitive the EV industry is becoming.

However, Nio shares might not have fallen as much as they did on Friday had it not been for the market sell-off. Their growth plans are intact and, in fact, they look bigger than ever. I would even say that this drop in Nio’s share price is a great buying opportunity for investors looking to add EV sector exposure to their portfolios.

For example, Nio expects its vehicle margins to recover in the third quarter, will start selling two new EV models in the coming months, and has already set a date, late 2024, for when it plans to start selling an affordable one. Mass-market EV priced between $30,000 and $45,000.

That’s not all: this mass-market electric vehicle will be powered by Nio’s in-house battery packs, which will begin manufacturing in 2024. Batteries are the most important component of an electric vehicle, and building them in-house will be a crucial step for Nio. on its way to becoming self-sufficient and producing electric vehicles profitably and at scale. Y On Friday, Nio announced plans to build an industrial park for making electric vehicle parts in a bid to bring its production base and parts supply chain closer together.

There is a lot to like about Nio for long-term investors.

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