The recovery in electric vehicle (EV) sales has been a boon for Nio (NYSE:NIO) that saw some impressive gains in Nio stock the last few months. This was a result of Tesla’s (NASDAQ:TSLA) victorious comeback in May that sparked a flurry of interest in the sector.
Investors sought to put their money behind the top automakers as optimism surrounding the EV market increased. Many electric auto-makers in China saw a spike in its prices and 2020 was famously dubbed “the year of the electric vehicle.”
One of the biggest beneficiaries of the increased demand for EV stocks was Nio which saw a huge-run up in its price since the start of the year. The automaker’s success was amplified by its optimistic Q2 earnings and strong position in the global EV market.
Nio Stock Dips After Q2 Earnings
Nio reported second-quarter earnings this past week and although results beat analyst estimates, the company’s stock price dipped 8.6% at Tuesday’s close. The automaker earned $526 million in sales which was 6% better than expected. Loss per share was 16 cents, also higher than the estimated 26 cents per share expected for Nio stock.
One major reason for Nio stock price drop is attributable to investor optimism surrounding the EV market. Going into earnings season the company’s stock saw a 280% increase since the start of the year. Although earnings beat estimates, the numbers shot down investor expectations, sending the price lower.
However, analysts remain fairly optimistic about Nio’s future. China has a growing presence in the EV market with Nio leading the pack. EV shares in Chinese companies even saw a lift in prices as sales rebounded from lows earlier this year. Although Nio isn’t profitable yet, the future prospects for its growth remain robust.
Alexander Potter, an analyst at Piper Sandler increased Nio’s price target this week from $4 to $14. He says that Nio’s track record remains unmatched and the automaker has the potential to become the “Tesla of China”. It’s also worth noting that Nio’s vehicle sales tripled this quarter.
BaaS Could Be a Gamechanger
China currently controls the largest auto market in the world and the EV industry in the region has become increasingly competitive with new entrants in the market. This has put a lot of pressure on household names like Nio to make new improvements to its technology in order to stay relevant.
Nio highlighted its Baas (battery as a service) initiative. The company’s electric vehicles will have in-built technology that will allow users to swap out battery packs when their car runs out of battery.
This on-board charging feature is a stark contrast to Tesla’s vehicles that need to be charged at one of its many charging stations. The BaaS technology could be a gamechanger for Nio as customers can buy cars without paying for the batteries.
Nio plans to launch a separate company to push the launch of the BaaS technology. The company has garnered the interest of various energy funds including Contemporary Amperex Technology (300750.SZ:CATL) that was cited as a potential investor. The BaaS asset program will enable users to buy batteries from the new company which will reduce the cost of owning an electric vehicle.
The Bottom Line on Nio
The market enthusiasm for electric vehicles in the U.S and abroad continues to increase as plug-in cars become more mainstream. Riding on the tailwinds of its competitor Tesla in the U.S, Nio stock has seen massive gains in the Chinese market this year.
Although investors were discouraged by the company’s earnings in Q2, the long-term prospects for the automaker remain fundamentally robust. When looking at the broader Chinese EV market, Nio holds a strong position and is considered to be the Tesla of the region by many.
Many investors predicted a bleak outlook for EV manufacturers at the start of the pandemic, but the perception has completely changed since then. With rising sales and better access to funding, these companies now remain a safe-bet in an otherwise volatile corona-economy.
While Nio’s stock price isn’t stellar, the company shows promising potential in the long-term. According to The Wall Street Journal, Beijing estimates that a quarter of its auto sales will by EVs by 2025. We recommend you stay plugged into Nio stock in order to reap it juicy benefits.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020. As of this writing, Divya Premkumar did not own any of the aforementioned stocks.
