It’s been a bumpy ride for Nio (NYSE:NIO) shareholders so far this year, with NIO stock down nearly twice as much as the S&P 500. But in the past month, shares of the Chinese smart electric vehicle maker have outperformed, up 30% compared with a loss of around 7% for the broader market index.
Part of investors’ enthusiasm stemmed from the company’s May delivery update, which showed Nio delivered 7,024 vehicles in May. That brings its year-to-date total to 37,866 vehicles, nearly 12% more than during the same period last year.
Shares sold off last week following the company’s first-quarter earnings report. Nio reported a wider-than-expected loss due to Covid-19-related shutdowns in China and higher commodity prices pressuring margins. However, the company said Q1 revenue was up 24% to $1.56 billion and deliveries rose 28.5% from a year ago.
On Tuesday, NIO stock shot up nearly 17% ahead of a product launch scheduled for today at 8 a.m. Eastern. The company is slated to reveal the ES7, its new five-passenger SUV.
Investors are clearly excited about the launch. Additionally, I believe the EV maker’s production will continue to recover as China eases Covid-19 restrictions. With a little help from the broader market, NIO stock has a good chance of trending higher from here.
Nio to Accelerate Deliveries as Covid-19 Restrictions Ease
While the situation in China remains in flux, the government has begun easing Covid-19 restrictions that disrupted Shanghai-based Nio’s ability to manufacture and deliver vehicles. The company noted in its May update that it is “gradually recovering,” with deliveries for the month up 4.7% from a year ago.
Going forward, management said it is looking to boost production “by working closely with supply chain partners and to accelerate the delivery recovery.” They also noted the company is seeing strong order inflow.
Nio began delivering its flagship premium smart electric sedan, the ET7, in late March, just as the Shanghai lockdown started. By the end of May, the company had delivered just over 1,70o of this model, which has a starting price of around $68,000, before subsidies, following a recent price hike to offset higher raw material costs.
I expect Nio to benefit from pent-up demand in the months ahead. Many wealthy Chinese consumers delayed purchasing an EV due to the lockdowns. As restrictions ease across the country, buyers are likely to seek out Nio’s products.
Part of the reason behind the continued demand is that the Chinese government seems to favor Nio over Tesla (NASDAQ:TSLA). China’s Ministry of Finance has extended EV subsidies for cars with swappable battery packs, like those produced by Nio.
Nio’s growing battery-swapping network only helps to widen its moat against Tesla. The company said it added 34 battery swap stations, 37 superchargers and 10,000 third-party charging piles last month.
The Bottom Line on NIO Stock
According to TipRanks, all 14 analysts who follow NIO stock rate it a “buy.” Their average price target of $39.26 is more than double the current price.
China’s desire to promote smart electric vehicles will only gain momentum, and the company’s charging network will continue to expand. Easing Covid-19 restrictions and continued disruption in the oil markets should provide tailwinds for the company.
The stock market is a forward-pricing system. It will anticipate Nio regaining its sales momentum in the latter half of 2022, making NIO stock an attractive buy here.
— Chris Lau
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Source: Investor Place