Nio (NYSE:NIO), the Chinese electric vehicle manufacturer, is having quite a summer. And the rally of Nio stock means investors and analysts are reconsidering their expectations.
The head-spinning turnaround shows just volatility of Nio stock.
The rally also illustrates the dramatic impact of government action supporting a key industry in a turbulent environment.
Targeting an Emerging Market
Nio was formed in 2014 to compete in China’s emerging luxury electric-vehicle market. Those who can afford the cars and SUVs like driving sleek and high-performing electric vehicles that make a statement. Vehicles designed and made by U.S. companies appealed to this class of customer in China for years. It’s no surprise that Tesla (NASDAQ:TSLA) is finding many buyers among those who prefer electric vehicles.
The comparison with Tesla is an easy step. Some observers nicknamed Nio the Tesla of China. Although an admittedly catchy nickname, it isn’t accurate. The two companies are pursuing very different paths.
Nio is headquartered in Shganghai, in that city’s automotive innovation park. The company works with a global perspective. Design work is performed in Munich. Computer software development is done in San Jose, California. The company also based support functions in London.
Nio enjoys the support of the Chinese government. That backing was crucial when the company was caught in a severe cash-flow crunch. Nio was strangling, thanks to weak demand and the ravages of the Covid-19 pandemic. When the company hit bottom just a few months ago, government aid enabled Nio to survive.
A Look at Nio Stock
Nio stock is trading around $14. That’s not a particularly large price until you consider that last Christmas, the price was about $2.50.
Nio’s 52-week low is listed as $1.19. The stock’s highest price in the same period is $16.44 per share.
Oh, the difference a few months make.
As 2019 drew to a close, many doubted Nio would survive. Now, the company sets delivery records. These milestones were reached despite supply-chain headaches caused by flooding. The company also paused production to configure facilities to make a third vehicle.
In its second quarter, the company reported it delivered 10,331 vehicles, an impressive 191% increase year-over-year.
Continuing the comparison, Nio delivered 3,831 vehicles in the first quarter of this year.
It seems Santa may have been good to Nio after all.
The Company’s Next Steps
Nio’s turnaround and the stock rally are getting a lot of attention. Those who explore find the company is indeed following an interesting path.
As my InvestorPlace colleague Patrick Sanders discussed recently, Nio is building its brand through more than just electric vehicles. The company is nurturing a deeper connection through social media, its welcoming Nio House facilities and fashion. Yes, I said fashion.
Nio also introduced its battery-as-a-service this month. Under this concept, the subscribing motorist stops at a Nio facility where crews replace the battery with one that is fully charged.
The company worked to get this down to about three minutes.
This service holds great appeal for a driver who isn’t keen to spend a long break at a charging station and instead is willing to lease batteries.
Also writing in InvestorPlace, David Moadel says battery leasing is more common in China and the idea could catch with American drivers.
“What’s great about the BaaS model is that it enables people to purchase an electric vehicle from Nio and then subscribe to rent battery packs separately,” he wrote.
Battery leasing looks to be the next catalyst for Nio stock’s next climb, Moadel says.
The Bottom Line
Surely it was tempting for investors to take profits if they bought Nio in the single digits.
However, this is a company innovating in tangible ways. Yes, Tesla enjoys a head start selling electric vehicles in China. But Nio is gaining momentum and holds a homefield advantage with benefits not available to other companies.
I believe investors should buy Nio stock and go for the long ride.
Larry Sullivan is a veteran journalist in Florida who has covered banking and finance for several years. He is a former investing editor at U.S. News & World Report in Washington D.C. At this writing, Larry Sullivan does not own a position in any of the aforementioned securities.