The so-called Tesla (NASDAQ:TSLA) of China, Nio Inc (NASDAQ:NIO), has had a rough go of it over the past few months.
Nio stock is down 70% since the beginning of March as the firm faced a variety of headwinds. These range from U.S.-China trade tension to a damaging recall. However, NIO CEO William Li is promising investors that the worst is over. That’s led many investors to question whether now is the right time to take a long-term position in Nio stock.
Industry Headwinds
One of the factors keeping the NIO stock price down is the ongoing trade war between the U.S. and China. Chinese stocks as a whole have been under pressure as the Trump administration continues to lean on Beijing. However, as my colleague Luke Lango pointed out, the market seems to be locked in a trade war cycle. While we’re on the bottom right now, an uptick could be around the corner.
Whether you believe that or not, it’s worth noting that when it comes to trade war casualties, NIO is actually positioned to be one of the luckier ones. As it stands, Nio stock is a Chinese pure-play. The firm doesn’t rely on exports or imports to and from the U.S. And that means the trade issues between Beijing and Washington will have a minimal effect on the firm’s business.
Of course, the Chinese economy may suffer in the wake of the trade tensions. This would almost certainly weigh on the Nio stock price. However, that kind of macroeconomic factor touches all of China’s companies as well as most big-name American stocks. So, although it’s worth considering, the trade war in itself doesn’t look like a major risk to NIO.
Vehicle Deliveries
Instead, investors should be looking closely at NIO’s vehicle deliveries for a better idea of the firm’s future prospects. Back in March, the automaker’s share price fell dramatically following its fourth-quarter results. This was largely because vehicle deliveries were lower than expected.
Not only was the firm struggling to hit its targets, but its losses were expanding. Furthermore, management broke the news that it would have to abandon plans to build its own factory.
NIO’s Q1 results were slightly better, giving investors a bit of hope for the future. But deliveries were still a sticking point. To make matters worse, NIO was forced to recall 5,000 of its ES8 vehicles because of battery fires. These incidents appear to have made a significant dent in the firm’s summer deliveries.
This week, NIO reported just 837 deliveries in July. This is a huge step down from the already disappointing 1,340 deliveries reported in June. Management said its focus on repairing the battery issues was largely to blame for the slide and that its August deliveries should make up for the poor July figures.
Li said he expects the firm to deliver between 2,000 and 2,500 vehicles in August. Such a target would put the firm at more than 3,100 deliveries in the first two months of Q3.
Make or Break Quarter for Nio Stock
NIO is due to release its Q2 results in the coming weeks. Although the figures that come out in that report will likely cause a reaction, its August deliveries occupy my focus. The July deliveries raise an important question for investors of Nio stock: is the firm overcoming one-time obstacles or is this decline a trend born out of other factors?
That’s an inquiry that the Q2 results can’t answer.
The ES6 model was seen as a major catalyst for NIO. But despite making up the majority of the firm’s July deliveries, it doesn’t appear to be moving the needle enough. August will prove whether or not the battery fires did permanent damage to Nio’s reputation. And without the added stress of replacing batteries, it should give investors a good idea of whether or not the ES6 is all that it claimed to be.
The Bottom Line
There’s no argument that Nio could be a great long-term play once trade tension subsides, electric vehicles catch on and the Chinese economy improves. However, those conditions aren’t likely to materialize anytime soon, at least not all at once.
That means investors of Nio stock must keep an eye on the near-term, if only to ensure that the relatively new company can get through it. At very least, NIO needs to meet expectations on August deliveries before it can be considered a buy right now.
As of this writing Laura Hoy did not hold a position in any of the aforementioned securities.
