China Frictions Steer Electric Automakers Away From Rare Earth Magnets

By Eric Onstad

Most are made of rare earth metals from China.

The metals in the magnets are actually abundant, but can be dirty and difficult to produce. China has grown to dominate production, and with demand for the magnets on the rise for all forms of renewable energy, analysts say a genuine shortage may lie ahead.

Some auto firms have been looking to replace rare earths for years. Now manufacturers amounting to nearly half global sales say they are limiting their use, a Reuters analysis found.

Automakers in the West say they are concerned not just about securing supply, but also by huge price swings, and environmental damage in the supply chain.

This means managing the risk that scrapping the metals could shorten the distance a vehicle can travel between charges. Without a solution to that, the range anxiety that has long hampered the industry would increase, so access to the metals may become a competitive edge.

Rare earth magnets, mostly made of neodymium, are widely seen as the most efficient way to power electric vehicles (EVs). China controls 90% of their supply.

Prices of neodymium oxide more than doubled during a nine-month rally last year and are still up 90%; the U.S. Department of Commerce said in June it is considering an investigation into the national security impact of neodymium magnet imports.

Companies trying to cut their use include Japan’s third-largest carmaker Nissan Motor Co, which told Reuters it is scrapping rare earths from the engine of its new Ariya model.

Germany’s BMW AG did the same for its iX3 electric SUV this year, and the world’s two biggest automakers Toyota Motor Corp of Japan and Volkswagen AG of Germany have told Reuters they are also cutting back on the minerals.

Rare earths are critical for the electronics, defence and renewable energy industries. Because some can generate a constant magnetic force, the magnets they make are known as permanent magnets.

Electric cars with these require less battery power than those with ordinary magnets, so vehicles can go longer distances before recharging. They were the no-brainer choice for EV motors until about 2010 when China threatened to cut rare earth supply during a dispute with Japan. Prices boomed.

Now, supply concerns are opening a divide between Chinese EV producers and their Western rivals.

While automakers in the West are cutting down, the Chinese are still churning out vehicles using the permanent magnets. A Chinese rare earths industry official told Reuters that if geopolitical risks are set aside, China’s capacity can “fully meet the needs of the world’s automotive industry.”

Altogether, based on sales data from JATO Dynamics, manufacturers accounting for 46% of total light vehicle sales in 2020 have said they have scrapped, plan to eliminate, or are scaling down rare earths in electric vehicles.

And new ventures are springing up to develop electric motors without the metals, or to boost recycling of the magnets used in existing vehicles.

“Companies that spend tens or hundreds of millions developing a family of products… they don’t want to put all their eggs in one basket – that’s the Chinese basket,” said Murray Edington, who runs the Electrified Powertrain department at British consultancy Drive System Design. “They want to develop alternatives.”

BMW says it has redesigned its EV technology to make up for a lack of rare earths; Renault SA has slotted its rare-earth-free Zoe model into a growing niche of small urban cars that do not need extended driving ranges.

Tesla Inc, the U.S. EV giant whose $621 billion market value is just below that of the top five automakers combined – is opting for both types of motors.

“You’re pulling your hair deciding whether you think supplies will be viable in the future and at what price,” said Ryan Castilloux of Canada-based consultancy Adamas Intelligence.

His consultancy expects global consumption of rare earths for magnets to climb to $15.7 billion by 2030, nearly four times this year’s value.

 

Graphic: Strong Demand to Spark Shortages of Rare Earths to Make Permanent Magnets – https://fingfx.thomsonreuters.com/gfx/mkt/qmypmdlmovr/Adamas%20Intelligence%20NdFeB%20alloy%20Balance%20Graphic.png

 

EVS AND WIND TURBINES

Neodymium is a mighty metal. The neodymium magnets in a typical EV weigh up to 3kg (6 lb), but even at 1/12th of that weight, a neodymium magnet can support steel as heavy as prizefighter Tyson Fury, and will have about 18 times more magnetic energy than the standard variety, British magnet company Bunting told Reuters.

Even though the pandemic has dented auto sales, demand for these magnets in electric vehicles shot up by 35% last year alone to 6,600 tonnes, Adamas Intelligence says.

The permanent magnets in hybrid and EV motors cost more than $300 per vehicle or up to half the cost of the motor, analysts say.

Analysts at investment bank UBS expect electric models to make up half of global new car sales by 2030, up from only 4% last year. The magnets are also in demand for wind turbines, global installations of which jumped 53% last year, according to the industry trade group.

Over the past two decades, Western countries largely withdrew from producing rare earth metals, which involves complex processing and often noxious byproducts. Today, China’s dominance runs through the entire production chain.

“The upstream rare earth supply chain, including mining and processing, is definitely a big concern, but when it comes to actual RE magnet production, China has an even tighter grip,” said David Merriman at Roskill, a critical materials consultancy in London.

NOT ENOUGH

For many EV drivers, range anxiety may not be an issue.

“Most people are driving less than 100 miles a day, so for that you can have a less efficient motor,” said researcher Jürgen Gassmann at Fraunhofer IWKS in Germany.

Even so, automakers in the West have adopted a range of strategies. Some, like Toyota, still use permanent magnets but have trimmed use of rare earths, developing a magnet that needs 20%-50% less neodymium.

Others, like BMW, have undertaken major redesigns: The German carmaker told Reuters it overhauled its drive unit to combine motor, electronics and transmission in a single housing, cutting down on space and weight.

“Our goal for the future is to avoid rare earths as much as possible and to become independent of possible cost, availability and – of course – sustainability risks,” said Patrick Hudde, BMW’s vice president of raw material management.

Tesla started in 2019 to combine engine types. Its S and X models have two motors: one with rare earth magnets, one without. The induction motor provides more power, while the one with permanent magnets is more efficient, Tesla said: Including a rare earth motor boosted the models’ driving range by 10%. Volkswagen also uses both types of motors on its new ID.4 crossover SUV, it said.

The use of non-rare-earth electric motors is set to jump nearly eightfold by 2030, according to Claudio Vittori, senior analyst of e-mobility at data analytics company IHS Markit. But he said permanent magnet motors will still dominate, mainly because of their power and efficiency.

Graphic: Most EVs to Use Rare Earth Permanent Magnet Motors – https://graphics.reuters.com/AUTOS-RAREEARTHS/MAGNETS/azgvoqeqovd/chart.png

If the forecasts are correct, it’s not certain that even these tweaks can cool the market.

“I think we need these innovations to help balance the really strong demand growth that we’re looking at,” Castilloux says. “There’s almost no scenario where supply will be enough.”

(Additional reporting by Eimi Yamamitsu in Tokyo, Jan Schwartz in Hamburg, Christoph Steitz in Frankfurt, Yilei Sun in Beijing and Tom Daly; edited by Veronica Brown and Sara Ledwith)

Today’s Market Wrap Up and a Glimpse Into Thursday

Another day, another new all-time high for the S&P 500. The broader market index just set its fifth-straight record after finishing the day fractionally higher to just under 4,300. The Nasdaq failed to keep up and ended the day slightly lower, while the Dow Jones Industrial Average tacked on 210 points, with Boeing, Goldman Sachs and Walmart leading the gains.

Now that the month of June is in the rear-view mirror, it’s clear investors have managed to push stocks to impressive gains despite signs of inflation and lofty valuations. The S&P 500 and Dow are up roughly 14% and close to 13%, respectively, year-to-date.

The economy is humming along, with consumers exhibiting signs of resilience. For the back half of the year, however, investors will be weighing whether the economy can stand on its own two feet without the help of a dovish Fed. This will begin with Friday’s all-important employment report.

Stocks on the Move

When you hear that an electric vehicle stock is rallying, you would not be alone to guess Tesla. Today, however, that title went to NIO, a Shanghai-based EV maker. The stock gained nearly 6% on the day amid optimistic investors ahead of the company’s Q2 results coupled with China’s recovering economy. Wall Street analysts are also reportedly turning more bullish on the stock.

Sticking with the auto stock theme, shares of Ford fell 1% today. The company revealed it would suspend operations at some of its North American facilities due to a shortage of chips. The shutdown will cost the automaker upwards of USD 2 billion and slash its production significantly in the interim.

China’s ride-share company Didi made its debut on the U.S. stock market today. The ADR shares came out of the gate strong, rallying by a double-digit percentage, but the enthusiasm didn’t last. Didi finished the day with a gain of 1%.

Look Ahead

The ISM Manufacturing index for June comes out after surpassing estimates and climbing to 61.2 in May. Wells Fargo predicts the reading will stay “elevated” for June amid a strong orders pipeline.

On the earnings front, retailer Walgreens and spice maker McCormick are on deck. McCormick has benefited from rising demand as consumers spent more time cooking during the shift to staying at home during the health crisis.

Biden to Pitch his $174 Billion Electric Vehicle Plan in Michigan

By David Shepardson and Nandita Bose

He will also rule out consumer incentives for high-priced electric luxury models, according to a White House fact sheet, as he argues for dramatic government spending to prod Americans to buy electric vehicles at a preview of Ford’s new EV F-150 pickup truck.

Biden is pushing for electric vehicles in the auto industry’s heartland, and trying to win over auto workers worried that more battery electric cars and trucks will mean fewer jobs.

The White House wants to encourage new battery production facilities, which are key to ramping up U.S. electric vehicle manufacturing.

Biden’s plan “proposes cost-sharing grants to support new high capacity battery facilities in the United States,” the fact sheet said, and backs grants to fund the retooling of shuttered factories “to build advanced vehicles and parts.”

United Auto Workers President Rory Gamble, who has criticized Ford and General Motors plans to build some EVs in Mexico, urged “Biden to make certain that investments to bolster electric vehicle production and sales incorporate strong labor standards and ensure that the vehicles of the future support good union jobs. Taxpayer dollars should be spent in support of U.S. built vehicles, not imports.”

The centerpiece of Biden’s EV plan is $100 billion in consumer rebates, according to an April U.S. Transportation Department email to lawmakers.

The White House fact sheet says Biden’s plan provides “point-of-sale incentives that encourage EV deployment. These incentives will not go towards expensive luxury models and will also incentivize manufacturers who use good labor practices.”

The existing $7,500 EV tax credit applies to vehicles regardless of price but phases out after a manufacturer sells 200,000 EVs. Credits for both Tesla and General Motors expired after they hit the cap.

The White House has declined to say how Biden wants EV tax credits restructured or if he wants to hike credits.

Biden will argue that the United States is falling behind China on EVs. “Despite pioneering the technology, the United States is behind in the race to manufacture these vehicles and the batteries that go in them,” the White House says.

Biden faces resistance from many congressional Republicans on his EV focus. Republicans are set to release a counterproposal to Biden’s $2.3-trillion jobs and infrastructure plan as early as Tuesday.

Biden backs new tax credits for zero-emission medium- and heavy-duty vehicles, which the White House notes “are major contributors to poor air quality” and the administration pegs as costing $10 billion.

Biden wants $15 billion to build 500,000 EV charging stations by 2030 – including in apartment buildings and public parking – and $45 billion to electrify a significant number of school and transit buses. He also wants to fund shifting the federal fleet to more EVs, including for the Postal Service to begin using EV delivery trucks.

(Reporting by David Shepardson and Nandita Bose; editing by Richard Pullin and Nick Zieminski)

China’s April Auto Sales Rise 8.6%, Up for 13th Straight Month

Sales reached 2.25 million vehicles in April, data from the China Association of Automobile Manufacturers (CAAM) showed.

Sales of new energy vehicles (NEVs), including battery-powered electric vehicles, plug-in petrol-electric hybrids and hydrogen fuel-cell vehicles, maintained their strong sales momentum, jumping 180%, with 206,000 units sold in the month.

NEV makers, such as Nio Inc, Xpeng Inc and Tesla Inc, are expanding manufacturing capacity in China, encouraged by a policy of promoting greener vehicles to cut pollution.

(Reporting by Yilei Sun and Tony Munroe; Editing by Himani Sarkar and Clarence Fernandez)

The NIO Normal: Chinese Electric Carmaker Seeks to Plug Buyers Into Lifestyle App

By Yilei Sun and Tony Munroe

In the morning, the 31-year-old eats cereal bought from the automaker’s Nio Life online store while chatting on its app with other Nio owners. He wears Nio gear for the drive to and from work, and in the evenings relaxes at home with a glass of Nio wine and more chat with Nio owners about how to get the best out of their cars.

“Buying Nio stuff has been a part of my daily life,” said Lu, “the prices are good and it is a habit to wear Nio clothes to events.” Over the past two years he has spent over 220,000 yuan ($34,000) on Nio Life products, on top of the 470,000 yuan he forked out to buy his ES8 SUV to replace a Ford Mondeo gasoline sedan.

Automakers around the world have long sought to tap into brand loyalties with goods like branded t-shirts or caps. But Shanghai-based Nio’s ambitions are much grander: a startup now valued at $70 billion according to its New York stock listing, it operates its own digital currency with tradeable credits that clients can gain from buying a car, attending events or even simply posting their stories on the Nio app.

“Communities tend to lean towards loyalty … that’s exactly what Nio is tapping into,” said Tu Le, analyst at China-based research firm Sino Auto Insights, referring to an app that Nio executives say now has around 150,000 daily users.

“If Nio can continue to build the community, launch great products, and not have any major quality spills they are well-positioned to be a major player in China.”

However, Le cautioned, “Nio still hasn’t figured out to convert more of the Nio community that haven’t purchased a Nio vehicle into Nio (car) buyers, which is concerning.”

THE NIO LIFE

Backed by Chinese tech giant Tencent Holdings Ltd as well as global investors betting on an electric car boom in the world’s biggest auto market, Nio’s huge market value – just above that of Germany’s BMW – provides a stark contrast with thus-far tiny sales.

It sold just under 44,000 cars last year in China, a fraction of BMW’s 2 million-plus global sales, and remained firmly in the red though it narrowed net losses significantly to $860 million.

Shanghai’s Lu might be among the more enthusiastic Nio owners, but he is far from alone. More than 80% of Nio customers participate in online or real-life Nio community activities, using Nio credits, apps and showrooms, according to executives who said Nio has sold over 3 million Nio Life products so far.

“Deep and close contacts with customers help us adjust to the changes of auto industry more quickly,” Nio’s co-founder and president Qin Lihong told Reuters in a recent interview. Qin said Nio will build a user community in foreign markets when it does branch out overseas – Europe being a likely market at some stage – but will adjust to local environments.

The same community message has been picked up by others.

Geely, China’s biggest private automaker, launched a new electric Zeekr brand with a similar strategy of city centre showrooms and lifestyle product lines. Meanwhile BMW, which has a long-time lifestyle product line, launched its car-owner app in China in last September.

Nio designed its app, which make its credits different from hotel’s points or airline’s miles, in such a way as to try to attract customers to interact more with the company, Nio’s user relations executive Calvin Shen said.

“Buying a car is a less frequent activity than taking a flight or shopping at supermarket, so we need to create more everyday activities to keep customers in touch,” Shen said.

Buyers like Shanghai’s Lu are on board with that, using some of his Nio credits to secure tickets for this year’s edition of company’s annual ‘Nio Day’ celebration. The Chengdu event, livestreamed on the app, saw the unveiling of the company’s first sedan, the ET7 – now set to join Lu’s collection of Nio goods.

(Reporting by Yilei Sun and Tony Munroe; Editing by Kenneth Maxwell)

Silicon Valley Self-Driving Startup Gatik Works with Isuzu to Build Delivery Trucks

By Jane Lanhee Lee

Gatik, which works with Walmart Inc in Arkansas and Louisiana and Loblaw Companies Ltd in Canada to deliver goods to stores from warehouses using autonomous trucks with safety drivers, has seen a boom in business as the pandemic has boosted sales at grocery stores.

“What I can share is our revenue is in the millions. So this is not a free service that we offer,” said co-founder and chief executive Gautam Narang. He said Gatik’s business model for now is to be a delivery service provider for retailers using self-driving technology rather than selling the technology to automakers.

Self-driving truck companies, especially those supplying big rigs that transport goods from warehouse to warehouse and drive along highways, have been gaining a lot of traction with investors keen to jump on the emerging technology. Still, the technology is years away from removing the driver completely.

Narang said Gatik and Walmart plan to test out fully driverless delivery in Arkansas later this year. “We actually worked with the Arkansas State Highway Commission to get the approval to take the driver out,” said Narang. He said approval for that came in December.

Gatik, which has raised nearly $30 million so far, said its trucks are owned by a major fleet operator which it isn’t yet disclosing. So far it has been using the Ford Transit chassis for its existing fleet of autonomous delivery trucks.

Ford Motor Co Executive Chairman Bill Ford’s venture capital fund Fontinalis Partners is an early investor in Gatik, according to Narang.

The collaboration between Isuzu and Gatik is limited to the United States and Canada and Isuzu will provide engineering support to Gatik for retrofitting its Series N medium-duty trucks, said Shaun Skinner, who leads Isuzu’s commercial truck division in those two countries.

Isuzu North America Corporation is a unit of Japan’s Isuzu Motors Ltd.

(Reporting by Jane Lanhee Lee; Editing by Christopher Cushing)

NIO Trading Higher After Strong March Deliveries

Chinese electric vehicle manufacturer NIO Inc. ADR (NIO) is trading higher by nearly 6% in Thursday’s pre-market session after reporting March deliveries of 7,257 vehicles, marking an impressive 373% year-over-year increase. However, the statistic is less spectacular that it looks at first glance because China auto sales were brought to a standstill in the first quarter of 2020 due to COVID-19 lockdowns.

NYSE Listing At Risk

The stock has struggled since January, held down by overbought technical readings after 2020’s 1000% return and a worldwide chip shortage that forced NIO to suspend production for five working days in March. In addition, China companies trading on U.S. exchanges are now subject to the Holding Foreign Companies Accountable Act and have to submit proof they are not “owned or controlled by any foreign government”. That could be tough after 2020’s $1.4 billion bailout from the municipal government of Hefei, the capital of China’s Anhui province.

NIO itemized first quarter production in the release, noting “deliveries consisted of 1,529 ES8s, the Company’s 6-seater and 7-seater flagship premium smart electric SUV, 3,152 ES6s, the Company’s 5-seater high-performance premium smart electric SUV, and 2,576 EC6s, the Company’s 5-seater premium smart electric coupe SUV. NIO delivered 20,060 vehicles in the first quarter of 2021, a new quarterly record representing an increase of 423% year-over-year. As of March 31, 2021, cumulative deliveries of the ES8, ES6 and EC6 reached 95,701 vehicles”.

Wall Street and Technical Outlook

Wall Street consensus has improved despite outsized 2020 share gains, with an ‘Overweight’ rating based upon 11 ‘Buy’, 6 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $38.80 to a Street-high $81 while the stock is set to open Thursday’s session more than $20 below the median $63.64 target. Both the chip shortage and potential for delisting are at least partially responsible for this weak placement.

NIO broke out above the 2018 high at 13.80 in July 2020 and entered a powerful trend advance that posted an all-time high at 66.99 in January 2021. The stock fell more than 50% into early March before finding support at the 200-day moving average. A pullback tested that level successfully earlier this week while the subsequent bounce raises odds for a double bottom reversal and strong recovery wave into the low 50s.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Why Shares Of NIO Are Down By 5% Today?

NIO Video 26.03.21.

NIO Is Forced To Temporary Suspend Production Due To Semiconductor Shortage

NIO stock found itself under strong pressure after electric vehicle producer announced that it would temporarily suspend production at its JAC-NIO plant in Hefei for five working days due to semiconductor shortage.

The company also noted that semiconductor shortage has negatively impacted its production volumes in March. In these circumstances, NIO had to change its first-quarter production guidance from 20,000 – 20,500 vehicles to 19,500 vehicles.

The stock market did not like the news, and NIO shares are down by more than 5% in today’s trading. The stock has already lost plenty of ground since early January when it made an attempt to settle above the $67 level as traders took a closer look at valuations of high-flying electric vehicle stocks.

It should be noted that market leader, Tesla, declined from $900 to the current levels near $635 within the same time frame, so NIO shares are clearly suffering from a sector-wide sell-off.

What’s Next For NIO?

Demand for chips surged during coronavirus pandemic as people were forced to work from home. A the same time, electric vehicle industry continued to grow at a fast pace, which also boosted demand for semiconductors.

Most likely, the semiconductor shortage problem will not be solved in the next few months as semiconductor producers need time to invest in new production lines before they will be ready to operate at higher capacity. This is the problem faced by the whole auto industry, and NIO is not an exception.

In the longer run, the problem will get solved, so the key question is whether investors are ready to take the long-term view at current price levels. NIO capitalization was cut in half compared to the highs reached in early January, so the stock has a decent chance to attract opportunistic traders who are willing to bet on the continued growth of the electric vehicle industry.

For a look at all of today’s economic events, check out our economic calendar.

NIO Shares Slump on Big Q4 Loss, Slowing Sales Due to Global Chip Shortage

Chinese electric vehicle maker NIO’s shares slumped 13% on Tuesday after the company’s loss far surpassed analysts’ expectations for the fourth quarter and warned the global chip shortage would slow the pace of EV deliveries in the first quarter.

The company, which designs, manufactures, and sells smart and connected premium electric vehicles, reported a fourth-quarter net loss of 1.49 billion yuan, way above Wall Street consensus estimates for a loss of 757 million yuan.

NIO’s reported a net loss per share of $1.05 for the fourth quarter, largely missing the market expectations for a loss of $0.16 per share. The firm said its revenue surged over 130% to $6.64 billion from the same period last year but came a little below analyst’s forecasts of $6.71 billion.

“NIO concluded a transformational 2020 with a new quarterly delivery record of 17,353 vehicles in the fourth quarter of 2020. The strong momentum has continued in 2021 as we achieved a historic monthly delivery of 7,225 vehicles in January and a resilient delivery of 5,578 vehicles in February, representing strong 352% and 689% year-over-year growth, respectively,” said William Bin Li, founder, chairman and chief executive officer of NIO.

“Supported by competitive product offerings, outstanding services and innovative business models, we have won increasing recognition from our users and expect to deliver 20,000 to 20,500 vehicles in the first quarter of 2021.”

However, that is slower than the 42% increase the Chinese electric vehicle maker reported between the third and the fourth quarter.

Following this, the U.S.-listed NIO shares, which surged over 1,100% in 2020, slumped 13% to $43.29 on Tuesday. However, it gained 1.6% to $43.98 in extended trading.

“We cut our DCF-based TP to USD91 from USD100 after factoring in our new earnings forecasts while our WACC assumption is unchanged. We reiterate our Buy rating on NIO as we see its technology as ahead of peers with strong sales volume growth ahead. The recent share-price retreat serves as a good entry point, in our view. Key downside risks: lower-than-expected sales volume and margin,” said Daiwa’s Kelvin Lau.

“Our 2021-2023E earnings are more conservative than the street likely as we are more cautious on its EBIT margin outlook. However, we are likely more positive on NIO’s long-run outlook.”

NIO Stock Price Forecast

Ten analysts who offered stock ratings for NIO in the last three months forecast the average price in 12 months of $68.26 with a high forecast of $80.30 and a low forecast of $54.00.

The average price target represents a 57.68% increase from the last price of $43.29. From those ten analysts, seven rated “Buy”, three rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $60 with a high of $122 under a bull scenario and $42 under the worst-case scenario. The firm gave an “Overweight” rating on the Chinese electric vehicle makers’ stock.

Several other analysts have also updated their stock outlook. JPMorgan lowered their target price to $70 from $75. Jefferies set a hold rating and a $60 target price for the company. Nomura set a buy rating and $80.30 target price for the company.

Moreover, Nomura set a buy rating and $80.30 target price for the company. Bank of America boosted their price objective to $70 from $59 and gave the stock a buy rating.

Analyst Comments

“Solid 1Q volume guidance suggests the good trajectory of sales recovery post CNY, corroborating superior market recognition of NIO’s models and brand. The strong balance sheet can finance more aggressive channel expansion and technology investment. Tight component supply will likely cap 2Q sales upside,” said Tim Hsiao, equity analyst at Morgan Stanley.

“We expect higher long-term growth visibility from the software development BaaS initiative. Tesla’s success in China has also attracted fund flows for EV makers, which we think bodes well for NIO’s long-term R&D investment capability and growth potential. Proven scale benefits with continuous gross margin improvement.”

Upside and Downside Risks

Risks to Upside: 1) Progress in planned A-share listing. 2) Stronger-than-expected sales volume. 3) Better-than-expected improvements in operating efficiency- highlighted by Morgan Stanley.

Risks to Downside: 1) Weaker-than-expected sales volume. 2) Lack of signs of efficiency improvement. 3) Lower-than-expected NOP option take rate.

Check out FX Empire’s earnings calendar

Why NIO Stock Is Down By 8% Today?

NIO Video 02.03.21.

NIO Missed Analyst Estimates

Shares of NIO found themselves under significant pressure after the company released its fourth-quarter report.

NIO reported revenue of $1 billion and GAAP loss of $0.16 per share, missing analyst estimates on both earnings and revenue. The company stated that it delivered 17,353 vehicles in the fourth quarter. For the full year, deliveries of vehicles were 43,728 compared to 20,565 vehicles in 2019.

NIO added that it had already delivered 12,803 vehicles in the first two months of this year and expected that first-quarter deliveries would be between 20,000 and 20,500 vehicles. The company also expects that its revenue will grow to $1.1 billion in the first quarter.

Traders did not like the report and sold NIO shares which are down by about 8% in today’s trading session. The company missed analyst estimates while its delivery guidance was not aggressive enough for the market.

What’s Next For NIO?

It should be noted that NIO shares gained more than 1000% in just one year so the market expected strong results from the company. Currently, investors are willing to bet on almost any company that is focused on electric vehicles. As a result, such stocks followed Tesla‘s lead and gained strong upside momentum in 2020.

This year, investors will likely pay more attention to financial results, but it remains to be seen whether disappointing earnings reports will be able to put any long-term pressure on shares of electric vehicle companies like NIO.

Such companies often miss expectations on profits or deliveries, but the market is often ready to turn a blind eye to temporary problems. While NIO’s earnings report was not as strong as analysts expected, the company continues to grow at a healthy pace. In this light, its stock may soon find enough support from speculative traders and investors who are ready to establish positions in EV-related stocks after a pullback.

For a look at all of today’s economic events, check out our economic calendar.

US Stock Market Daily Recap: Worst for Stocks Over?

The way that bond yields have popped has weighed heavily on growth stocks. Outside of seeing a minor comeback on Friday (Feb. 26), the Nasdaq dropped almost 7% between February 12 and Friday’s (Feb. 26) close.

Other indices didn’t fare much better either.

The spike bond yields, however, in my view, are nothing more than a catalyst for stocks to cool off and an indicator of some medium to long-term concerns. But calling them a structural threat is a bit of an overstatement.

Rising bond yields are a blessing and a curse. On the one hand, bond investors see the economy reopening and heating up. On the other hand, with the Fed expected to let the GDP heat up without hiking rates, inflation may return.

I don’t care what Chairman Powell says about inflation targets this and that. He can’t expect to keep rates this low, buy bonds, permit money to be printed without a care, and have the economy not overheat.

He may not have a choice but to hike rates sooner than expected. If not this year, then in 2022. I no longer buy all that talk about keeping rates at 0% through 2023. It just can’t happen if bond yields keep popping like this.

So was the second half of February the start of the correction that I’ve been calling for? Or is this “downturn” already over?

Time will tell. While I still do not foresee a crash like we saw last March and feel that the wheels are in motion for a healthy 2021, I still maintain that some correction before the end of this month could happen.

Corrections are also healthy and normal market behavior, and we are long overdue for one. Only twice in the last 38 years have we had years WITHOUT a correction (1995 and 2017), and we haven’t seen one in almost a year.

A correction could also be an excellent buying opportunity for what could be a great second half of the year.

Pay attention to several things this week. The PMI composite, jobs data, and consumer credit levels will be announced this week.

We have more earnings on tap this week too. Monday (March 1), we have Nio (NIO) and Zoom (ZM), Tuesday (March 2) we have Target (TGT) and Sea Limited (SE), Wednesday (March 3), we have Okta (OKTA) and Snowflake (SNOW), and Thursday (March 3) we have Broadcom (AVGO).

My goal for these updates is to educate you, give you ideas, and help you manage money like I did when I was pressing the buy and sell buttons for $600+ million in assets. I left that career to pursue one to help people who needed help instead of the ultra-high net worth.

With that said, to sum it up:

The downturn we experienced to close out February could be the start of a short-term correction- or it may be a brief slowdown. A further downturn by the end of the month is very possible, but I don’t think that a decline above ~20%, leading to a bear market, will happen.

Hopefully, you find my insights enlightening. I welcome your thoughts and questions and wish you the best of luck.

 Nasdaq- a Buyable Slowdown?

Figure 1- Nasdaq Composite Index $COMP

The Nasdaq’s downturn was so overdue. Even though more pain could be on the horizon, I like the Nasdaq at this level for some buying opportunities.

If more losses come and the tech-heavy index dips below support at 13000, then it could be an even better buying opportunity. It can’t hurt to start nibbling now, though. If you waited for that perfect moment to start buying a year ago when it looked like the world was ending, you wouldn’t have gained as much as you could have.

Plus, if Cathie Wood, the guru of the ARK ETFs that have continuously outperformed, did a lot of buying the last two weeks, it’s safe to say she knows a thing or two about tech stocks and when to initiate positions. Bloomberg News ’ editor-in-chief emeritus Matthew A. Winkler wouldn’t have just named anyone the best stock picker of 2020.

Before February 12, I would always discuss the Nasdaq’s RSI and recommend watching out if it exceeds 70.

Now? As tracked by the Invesco QQQ ETF , the Nasdaq has plummeted almost 7% since February 12 and is closer to oversold than overbought. !

While rising bond yields are concerning for high-flying tech stocks, I, along with much of the investing world, was somewhat comforted by Chairman Powell’s testimony last week (even if I don’t totally buy into it). Inflation and rate hikes are definitely a long-term concern, but for now, if their inflation target isn’t met, who’s to fight the Fed?

Outside of the Russell 2000, the Nasdaq has been consistently the most overheated index. But after its recent slowdown, I feel more confident in the Nasdaq as a SHORT-TERM BUY.

The RSI is king for the Nasdaq . Its RSI is now around 40.

I follow the RSI for the Nasdaq religiously because the index is merely trading in a precise pattern.

In the past few months, when the Nasdaq has exceeded an overbought 70 RSI, it has consistently sold off.

  • December 9- exceeded an RSI of 70 and briefly pulled back.
  • January 4- exceeded a 70 RSI just before the new year and declined 1.47%.
  • January 11- declined by 1.45% after exceeding a 70 RSI.
  • Week of January 25- exceeded an RSI of over 73 before the week and declined 4.13% for the week.

I like that the Nasdaq is almost at its support level of 13000, and especially that it’s below its 50-day moving average now.

I also remain bullish on tech, especially for sub-sectors such as cloud computing, e-commerce, and fintech.

Because of the Nasdaq’s precise trading pattern and its recent decline, I am making this a SHORT-TERM BUY. But follow the RSI literally.

For an ETF that attempts to directly correlate with the performance of the NASDAQ, the Invesco QQQ ETF (QQQ) is a good option.

For more of my thoughts on the market, such as the streaky S&P, inflation, and emerging market opportunities, sign up for my premium analysis today.

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For a look at all of today’s economic events, check out our economic calendar.

Matthew Levy, CFA
Stock Trading Strategist
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matthew Levy, CFA, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Levy is not a Registered Securities Advisor. By reading Matthew Levy, CFA’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading, and speculation in any financial markets may involve high risk of loss. Matthew Levy, CFA, Sunshine Profits’ employees, and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

NIO Sellers in Control Ahead of Report

NIO Inc. (NIO) reports Q4 2020 earnings after Monday’s closing bell, with analysts looking for a loss of $0.38 per-share on $6.7 billion in revenue. If met, earnings-per-share (EPS) will mark an 85% loss reduction compared to the same quarter last year, when the Chinese EV manufacturer was trading at just 1/15th of its current price. The stock fell in November after beating Q3 estimates but recovered quickly, posting an all-time high at 66.99 on Jan 11.

NVIDIA Partnership

NVIDIA Inc. (NVDA) and NIO just announced a partnership to develop a new generation of self-driving vehicles, using NVDA’s DRIVE Orin system-on-a-chip to power E7 sedan technology. The first production vehicle is expected to roll off the assembly line in 2022. The stock topped out right after the news in reaction to the fourth debt offering since 2019, reminding shareholders the company still hasn’t posted a profitable quarter.

Still, NIO continues to grow at a phenomenal rate, with January deliveries increasing by 352.1% year-over-year to a record 7,225 vehicles. Breaking it down, the company noted “deliveries consisted of 1,660 ES8s, the Company’s 6-seater and 7-seater flagship premium smart electric SUV, 2,720 ES6s, the Company’s 5-seater high-performance premium smart electric SUV, and 2,845 EC6s, the Company’s 5-seater premium electric coupe SUV. As of January 31, 2021, cumulative deliveries of the ES8, ES6 and EC6 reached 82,866 vehicles”.

Wall Street and Technical Outlook

Wall Street consensus has grown more cautious after strong 2020 returns, with a ‘Moderate Buy’ rating based upon 7 ‘Buy’ and 4 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $54 to a Street-high $80 while the stock is now trading nearly $6 below the low target. The worldwide chip shortage is impacting this poor placement, which has also weighed on Tesla Inc. (TSLA).

The stock topped out at 13.80 just two days after coming public in the United States at 6.00 in September 2018. It mounted that resistance level in July 2020, entering a momentum-fueled advance that lost steam after stretching above 50 in November. A January breakout above that barrier failed about two weeks ago, dropping NIO into an intermediate correction that’s held, so far at least, above December range support at 38.43.

For a look at all of this week’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Nio Posts More Than Double Revenue in Q2 Despite COVID-19 Crisis; Target Price $17

Nio Inc, a pioneer in China’s premium electric vehicle market, said its revenue more than doubled in the second quarter as vehicle deliveries surge despite the disruption caused by COVID-19 pandemic, sending its shares up about 10% in pre-market trading on Tuesday.

China’s electric vehicle maker said its quarterly revenue increased to at 3.72 billion yuan in the second quarter, representing an increase of 146.5% from the second quarter of 2019 and an increase of 171.1% from the first quarter of 2020. Excluding items, Nio reported a loss of 1.08 yuan per American depository share, experts had forecast a loss of 1.84 yuan per ADS.

Auto industry in the world’s second-largest economy recovered from the COVID-19 outbreak as demand picked after lockdown restrictions were eased after the country reported fewer coronavirus cases. China was also the world’s first country to register economic growth.

Nio said it delivered 10,331 in the second quarter of 2020, including 8,068 ES6s and 2,263 ES8s, compared with 3,553 vehicles delivered in the second quarter of 2019 and 3,838 vehicles delivered in the first quarter of 2020.

China’s electric vehicle maker expects total revenues to be between 4,047.5 million yuan and 4,212.3 million yuan, representing an increase of approximately 120.4% to 129.3% from the same quarter of 2019, and an increase of approximately 8.8% to 13.3% from the second quarter of 2020.

U.S.-listed shares of the company shares gained about 10% to $15.58 in pre-market trading on Tuesday. The stock surged over 250% so far this year.

Executive comment

“The current constraints on the productions will be lifted in the near future and we are confident that our production capacity can meet the accelerated demand of our models,” Chief Executive Officer William Bin Li said in a press release.

“We achieved a record-high quarterly delivery of 10,331 ES8 and ES6 vehicles in total in the second quarter of 2020 and expect to deliver 11,000 to 11,500 vehicles in the third quarter as the momentum continues.”

Nio stock forecast

Six analysts forecast the average price in 12 months at $7.26 with a high forecast of $13.50 and a low forecast of $2.50. The average price target represents a -48.91% decrease from the last price of $14.21. From those six, two analysts rated ‘Buy’, two analysts rated ‘Hold’ and two rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $12 with a high of $17 under a bull scenario and $7 under the worst-case scenario. On June 24, Goldman Sachs cuts to neutral from buy, raising the target price to $7 from $6.4.

However, we think it is good to buy at the current level and target $17 as 100-day Moving Average and 100-200-day MACD Oscillator signal a strong buying opportunity.

Analyst comment

“We believe the recent rally reflects the smooth funding process from Hefei investors. Tesla‘s success in China has also attracted fund flows for EV makers, that we think has helped to drive NIO stock performance rally,” said Tim Hsiao, equity analyst at Morgan Stanley.

“We remain EW given the long-term uncertainties around scalability. Our price target hike reflects a more meaningful sales volume upgrade in the forecast period. We lower our WACC assumption to 12% from 14% (vs. 10.9% for major OEMs), given lower equity and debt costs due to rate cuts and NIO’s proven operation,” the analyst added.

Upside and Downside Risks

1) Progress in planned A-share listing. 2) Stronger-than-expected sales volume. 3) Better-than-expected improvements in operating efficiency, Morgan Stanley highlighted as major upside risks to Nio.

1) Weaker-than-expected sales volume. 2) Lack of signs of efficiency improvement, were the major two downside risks.

NIO Drives Higher On Upbeat June Sales

NIO Inc. (NIO) shares charged 22.71% higher Monday after the Chinese electric vehicle maker reported June sales jumped 179% from a year earlier despite challenges from the pandemic. The better-than-expected figure comes on the back of U.S. rival Tesla, Inc. (TSLA) smashing Wall Street quarterly delivery projections.

NIO delivered 3,740 vehicles last month, taking its second-quarter tally to 10,331 vehicles. It marks the first times the Shanghai-based carmaker has exceeded 10,000 quarterly shipments – an impressive feat amid slipping global auto sales.

As well as topping its delivery expectations, the company’s chief operating officer Steven Feng remains confident of meeting operational efficiency targets. ‘We are pleased to deliver solid results driven by our competitive products, superior services, and expanding sales network. Our deliveries in the second quarter of 2020 exceeded the high end of our earlier projection, and we are confident that our goals on gross margin and operational efficiency will be achieved.’ Feng said, per CleanTechnica.

Investors may have already factored in most of the upside, given the company’s American Depositary Receipt (ADR) listed on the New York Stock Exchange has risen a staggering 366% over the past three months as of July 7.

Wall Street View

Goldman Sachs analyst Fei Fang upgraded the stock from ‘Neutral’ to ‘Buy’ in early June but revised his rating back to ‘Neutral’ by the end of the month and slashed his 12-month price target from $7 to $6.4.

Although the analyst still likes the company’s underlying fundamentals, he has grown more concerned about its lofty valuation. Since Fang’s initial upgrade on June 3, NIO shares trade over 100% higher, despite the firm posting an unaudited first-quarter net loss of $243.3 million.

Most other analysts have also taken the ‘wait and see’ approach, with the stock receiving 9 ‘Hold’ ratings. Currently, the consensus price target among analysts sits at $39.01, according to Yahoo! Finance – amazingly representing another 239% upside from Monday’s $11.51 close.

Technical Outlook

Since bottoming out just above $2 in mid-March, Nio shares have trended steadily higher with price accelerating on heavy volume in the past two trading sessions. Investors should be mindful of chasing recent gains as the relative strength index sits deep in overbought territory, increasing the probability of a retracement. Instead, those who wish to buy should look for an entry point near $5, where the stock finds a confluence of support from a horizontal trendline and the 50-day simple moving average.

NIO Chart