Andy Fang
Shares of electric vehicle makers surged last week despite Chinese electric vehicle company XPeng (XPEV) posting light fourth-quarter delivery guidance. Chinese EV start-ups have also released their monthly updates for shipments that have seen renewed growth, especially for NIO (NYSE: NIO) and Li Auto (LI). Although NIO’s delivery chart for November was good, I think the sector is headed for more short-term trouble, largely because the Chinese economy is weakening rapidly!
November Delivery Update
The good news first: NIO saw a strong recovery in delivery volumes in the month of November and recorded record deliveries of 14,178 electric vehicles. NIO’s delivery volumes were up 30.3% year-over-year, primarily due to the company’s impressive ramp of sedan models which continued to accelerate in November. NIO saw the second-strongest month-over-month rebound in its industry group after Li Auto.
Li Auto delivered 15,034 electric vehicles in November, which is also a monthly delivery record and the industry group’s highest total delivery volume. XPeng continued to struggle in the third quarter as well as in November: the start-up, which is currently ramping up production of the G9 mid-size sport utility vehicle, delivered just 5,811 electric vehicles , mostly P7 smart sports sedans. and the company only posted 13.9% month-over-month growth. XPeng also released a very light Q4 delivery forecast, which I return to below.
The delivery comparison chart for China’s top three EV startups looks like this.
Deliveries |
September |
Annual growth in September |
October |
October annual growth |
November |
November annual growth |
M/M growth |
NIO |
10,878 |
2.4% |
10,059 |
174.3% |
14,178 |
30.3% |
40.9% |
XPEV |
8,468 |
-18.7% |
5 101 |
-49.7% |
5,811 |
-62.8% |
13.9% |
LI |
11,531 |
62.5% |
10,052 |
31.4% |
15,034 |
11.5% |
46.6% |
(Source: Author)
The delivery share of sedans is now approaching 50%
If we dig a little deeper into NIO’s monthly delivery update, we can see that the start-up continued to make remarkable progress with its sedan production in November. The company only started delivering the all-electric ET5 sedan at the end of September and NIO has already increased monthly deliveries to 2,968 ET5s in November. In total, NIO delivered 6,175 sedans in November (including 3,207 ET7s). NIO’s total sedan deliveries climbed 51.3% from October 2022 and sedans accounted for a 43.6% delivery share last month, showing a 3 PP month-on-month improvement other. Given how strongly NIO is ramping up production of its sedans, I estimate that NIO could surpass a 50% sedan delivery share in Q1 23, which means every second EV rolling off the factory belts of NIO by then might be a sedan, not a sport utility vehicle.
NIO ET7/ET5 Metrics |
July |
August |
September |
October |
November |
Total deliveries |
10,677 |
10,878 |
10,878 |
10,059 |
14,178 |
NIO sedan deliveries |
2,473 |
3,126 |
3,149 |
4,080 |
6,175 |
M/M growth |
-43.1% |
26.4% |
0.7% |
29.6% |
51.3% |
Sedan Delivery Share |
23.2% |
28.7% |
28.9% |
40.6% |
43.6% |
(Source: Author)
XPeng’s Depressing Q4 22 Delivery Forecast, Market Challenges Are Real
XPeng delivered mixed results for Q3’22 last week, but shares still climbed nearly 50%. However, XPeng released a forecast for Q4 deliveries that forecasts a delivery volume of just 20-21,000 EVs, posting a 49.7-52.1 percent year-on-year decline.
Despite the weak outlook, shares of electric vehicle companies, particularly XPEV, soared last week on speculation that China could ease COVID-19 limitations.
I think the market overreacted last week and there is a strong possibility that valuations will correct lower again. The reason is that China’s economy is slowing and Beijing has given no indication that it will ease COVID-19 restrictions. The Chinese economy is simultaneously slowing down on several fronts, notably in real estate, industrial production and retail sales. The IMF also warned in October of a “sharp and unusual slowdown” in China and lowered its forecast to just 3.2% annual growth… which is the “second lowest level [of growth] since 1977”.
What is cheap can become cheaper
My opinion of NIO has evolved in 2022 (my rating went from a strong buy to a hold) and while I believe NIO has a great product line and long-term growth opportunity in the Chinese EV market , stocks could retest their lows if the Chinese economy continues to slow in 2023.
NIO’s market capitalization has shrunk by around 64% this year and the shares currently have a P/S ratio of 1.6X. Li Auto and XPeng are trading at roughly similar P/S ratios.
Risks with NIO
NIO’s production ramps, especially for the ET7 and ET5, look promising as the company moves closer to a 50% sedan delivery share in Q1’23. However, the economy in China is dangerously slowing, which means product demand and pricing could become issues for NIO just as the company overcame supply chain issues and finally gained the upper hand in its business. production situation. Lower product prices and lower demand could add to the already mounting pressure on NIO’s vehicle margins.
Final Thoughts
Although the valuations of XPeng, Li Auto and NIO soared last week, I think the market reaction was just ridiculous. Given XPeng’s mixed Q3’22 results, weak Q4’22 delivery forecast, and the backdrop of a weakening Chinese economy, I think investors are overly optimistic and soaring valuations , from NIO to XPeng, is probably neither deserved nor sustainable.
NIO saw record monthly shipments in November, which is great news, especially after the company struggled throughout the year. However, the Chinese economy is not in a good position and is likely to slow further, which could create demand, price and margin problems for NIO and other electric vehicle manufacturers in the short term!
#NIO #Market #optimism #overreaction #NYSE #NIO