A trailblazer among Chinese electric-vehicle manufacturers, Nio (NYSE:NIO) suffered a major setback as the novel coronavirus shook the market earlier this year. At the same time, Nio stockholders were underwater for several consecutive months.
However, the $2.40 level appears to the be the line in the sand for Nio stock traders. Indeed, the share price looks like it’s staging a gradual recovery back towards $4 and perhaps even $5 and beyond.
Is everyone on board with Nio’s U-turn? Not necessarily. “Only the top-tier EV makers will be able to attract attention from investors in this environment,” cautions Xpeng Motors President Brian Gu.
Given the harsh economic conditions precipitated by the onset of the coronavirus, Gu’s undoubtedly making a valid point. Has Nio, then, earned its place among the top tier of Chinese electric-vehicle manufacturers?
Making Progress
An important part of successful investing is keeping one’s expectations realistic. For instance, with the coronavirus wrecking the automotive market generally, we can’t expect Nio to deliver tens of thousands of vehicles per month.
And so, the focus should be on progress, not perfection. Even with the virus-induced issues pertaining to supply and demand, Nio fared reasonably well in March. To be more specific, the company delivered 1,533 vehicles that month.
That’s good enough to meet Nio’s first-quarter guidance for vehicle deliveries. Keep in mind that March was a month when the oil-price rout began to accelerate. That’s a headwind to electric-vehicle manufacturers because low oil prices make alternatively powered vehicles less appealing.
So, it’s impressive that Nio delivered as many vehicles as it did in March. Still, that by itself isn’t enough to quell the fears of many investors. What the trading community really wants is a return to normalcy.
That might not sound realistic, but April’s data might surprise you while providing some encouragement.
No April Showers
If the Nio stock bears were expecting storm clouds in the month of April, they were probably quite disappointed. In the span of a month, the company managed to provide ample hope of a faster-than-expected turnaround.
Can shareholders really believe that Nio is returning to pre-outbreak sales levels? It might sound impossible, but the numbers don’t lie.
Believe it or not, in the month of April, Nio managed to deliver 3,155 vehicles. That’s more than twice as many vehicles as the company had delivered during the previous month. It’s also double the company’s vehicle sales in April of the prior year.
How can we explain Nio’s astounding return to pre-Covid-19 production levels? We could just call it a miracle, but a more credible explanation has been provided by Nio CEO William Bin Li:
“These results were mainly contributed by the recovering production and delivery capabilities … Meanwhile, we have witnessed strong order growth momentum driven by the increasing recognition of our competitive products, exceptional services, and particularly the battery swapping technologies by our existing and potential users.”
Skeptical investors might discount the talk of “competitive products” and “exceptional services” as typical CEO jawboning. But the battery-swapping technology is, indeed, a strong selling point for Nio’s vehicle lineup.
It’s also worth noting that the vast majority of Nio’s success in April can be attributed to the company’s ES6 model. Nio delivered 2,907 of the ES6 vehicles, which are smaller than the ES8 model vehicles.
Nio only delivered 248 of the ES8s models in April, so it’s possible that the public isn’t yet sold on the company’s relatively new SUV offering. As long as the smaller ES6 picks up the slack, though, Nio can hope to maintain its current pace of vehicle deliveries.
The Takeaway on Nio Stock
Considering the problems encountered by the automotive market this year, Nio’s progress in April is actually pretty amazing. If this forward momentum persists, Nio stock has a decent chance of reclaiming $5 in the near term and $10 in the long term.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, he did not hold a position in any of the aforementioned securities.
