Please ensure Javascript is enabled for purposes of website accessibility

Why NIO Stock Is Down Today

By John Rosevear - May 4, 2021 at 11:21AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Chip-supply concerns are hitting auto stocks, but one analyst thinks NIO is doing just fine.

What happened

Shares of Chinese electric-vehicle maker NIO (NIO 3.84%) were lower at midday on Tuesday amid a broader sell-off of automotive and related stocks on continued concerns about the effects of a global shortage of semiconductors.

As of noon EDT today, NIO's American depositary shares were down about 6.1% from Monday's closing price.

So what

NIO was just one of many automakers that saw its U.S. listed shares trading lower on Tuesday, as investors digested the likely effects of a prolonged shortage of automotive semiconductors. Tight chip supplies have already forced a number of automakers, including NIO, to cut back production despite strong global demand for new vehicles. 

But not everyone is feeling bearish on the Chinese electric-vehicle upstart. In a note released on Monday, Deutsche Bank analyst Edison Yu raised his margin estimates for NIO in light of the company's better-than-expected first-quarter earnings report last week.

A dark blue NIO ES8, a big electric luxury crossover SUV.

Sales of NIO's flagship ES8 have been strong since the company upgraded the big SUV's range and technology last year. With more buyers opting for longer-range battery packs, NIO's gross margins are growing more quickly than expected. Image source: NIO.

Yu said that while he and his team still expect NIO to deliver about 95,000 vehicles in 2021, they now believe that its revenue will be higher than their previous forecast given the company's stronger-than-expected average selling prices in the first quarter, which in turn will boost margins. 

Accordingly, Yu is now forecasting a full-year gross margin of 20.3%, up 2.5 percentage points from his earlier forecast, and a loss of $1.25 per American depositary share. 

Now what

What's driving that margin improvement? CFO Steven Feng told auto investors last week that more buyers opted for longer-range battery packs and the NIO Pilot driver-assist system, boosting average transaction prices and NIO's profit per vehicle sold. 

CEO William Bin Li acknowledged that NIO's gross margins are running higher than expected at this point in the company's growth plan. He said that this extra cash will be invested in user services and future technology, rather than cutting prices to chase added market share.

John Rosevear has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends NIO Inc. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Nio Inc. Stock Quote
Nio Inc.
$20.82 (3.84%) $0.77

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/12/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.