After taking a severe beating due to the novel coronavirus, China’s automotive sector — and more specifically, its electric vehicle industry — is likely on a recovery path. Despite some financial vulnerabilities, EV manufacturer Nio (NYSE:NIO) brought home stunning results, setting up Nio stock for remarkable upside.
Last month, the company delivered 3,436 vehicles, a record high in terms of monthly deliveries. Significantly, this figure was up 9% over April and a whopping 215% year over year. If that wasn’t enough to whet your appetite, Nio CFO Steven Feng stated that the automaker expects to hit its second-quarter delivery target of 9,500 to 10,000 vehicles.
If there’s a pandemic going on, someone clearly forgot to tell Nio.
Honestly, I’m not one bit surprised that the company was able to outperform. Although acute headwinds can impact even the greatest of megatrends, such setbacks are only temporary. That’s why well before these incredibly positive results, I recommended my readers to advantage Nio stock, especially on the dips.
Principally, a major driver for the EV maker’s success is the underlying platform’s inherent simplicity. While EVs are technological marvels, they don’t require the intricate machinery of combustion engines. As I’ll explain below, EVs have fewer parts and that’s not just a benefit to the manufacturer.
Invariably, a combustion-based vehicle requires routine maintenance to run properly. But with EVs, because they obviously run on electricity, you don’t have many of the maintenance schedules — such as oil changes — to worry about.
Ordinarily, that level of convenience may not matter. But during the onset of quarantines and lockdowns, not having access to automotive specialists was worrisome. Hence, Nio stock received free, organic marketing.
Nio Stock Perfectly Aligns with China’s Ambitions
It’s no secret that China has been ramping up research and development across all relevant industries. No longer satisfied with being the world’s manufacturing base, the country is now eagerly seeking to become a global innovator.
You don’t have to look far to recognize how quickly the Chinese have caught up. A few decades ago, China was largely an agrarian nation. Today, its mega cities rival the world’s best. To put it bluntly, we’re witnessing an economic miracle.
But even their acumen couldn’t spark much momentum with their combustion-based automotive industry. Try as they might, Chinese automakers couldn’t master the intricacies involved in developing efficient and reliable engines, such as what you might get from Toyota (NYSE:TM). Nor could they get anywhere close to European luxury brands like Mercedes-Benz (OTCMKTS:DMLRY) or BMW.
However, Tesla (NASDAQ:TSLA) demonstrated the viability and allure of electric vehicles. Featuring a completely different platform, EVs do away with the mechanical acumen required for engineering combustion engines. In my view, this fact single-handedly changed the narrative for Nio stock. What we’re seeing today is just mainstream recognition of this paradigm shift.
To use a sports analogy, Nio is a football team that only knows how to run the ball. It’s facing a team that has a bevy of receiving talent and a quarterback with a veritable cannon for an arm. But in extremely inclement weather, every team has to rely on the ground game.
And that’s really the story behind Nio stock. Rather than fight a battle that it can’t win, Nio is instead moving to terrain that suits its strengths. All the company needs is infrastructure.
Of course, China is more than happy to oblige. By going electric, it can overturn the present automotive hegemony.
Chinese EV Makers May Have the Upper Hand
As you know, the Trump administration has come down hard against China. Over the last few weeks, the President has withdrawn from the World Health Organization and ended the U.S. government’s special relationship with Hong Kong. Consistently, he has blamed China for the spread of the coronavirus.
The world’s second-biggest economy has never been taken to task like this. Naturally, this sets the stage for a huge rivalry, perhaps an economic cold war. If so, China is frankly better positioned to come out on top, at least in terms of the automotive industry.
That’s because the simplicity of the EV platform extends through every component of the supply chain, including the number of workers that are necessary to build these vehicles. With fewer moving parts, EV manufacturers simply need fewer workers.
Given the exceptional prowess of China’s manufacturing base, it’s very conceivable that Nio and its regional competitors can churn out EVs at unbelievable rates. Also, because Nio clearly established its brand dominance and recognition, the company could eat away at America’s global automotive influence.
Of course, that would be bad news for General Motors (NYSE:GM) and Ford (NYSE:F), unless they can innovate and adapt quickly. But with Nio’s lead and momentum, it’s hard to imagine them playing catch up. Therefore, you’ll want to have a very long-term approach for Nio stock.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
