Investors Should Believe the Hype with Nio

Nio (NYSE:NIO) is one of the most promising electric vehicle (EV) companies in the automobile industry. Its unique designs and constant innovations have helped it gain a long-term foothold in the market. Hence, with a 507% growth in its shares this year, NIO stock is here to stay.

Fasten Your Seatbelts, Nio Stock's Wild Ride Continues
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Its stellar second-quarter highlights the depth of the company’s business model, which has withstood the crippling effects of the pandemic. It crossed the 10,000 deliveries mark this quarter and is likely to exceed them in the next one. Additionally, Nio is investing heavily in the autonomous vehicle (AV) sector and its battery swap technology.  On top of that, it has the firm support of the Chinese government, which continues to vociferously support domestic EV companies.

Stellar Second Quarter

Nio’s recently posted its remarkable second-quarter results. Revenues grew by a whopping 146.5% year-over-year to $526.4 million. The massive revenue growth helped narrow down its net loss to $166.5 million, a 64.2% reduction from the prior-year period. Margins improved handsomely from a negative 24.1% to 9.7%. The improvements in vehicle margins are driven by reduced battery pack costs and stable average selling prices.

Deliveries crossed the 10,000 per quarter mark for the first time. Deliveries for the ES8 and ES6 models increased dramatically by 119.8% from the prior-year period. In August alone, Nio notched up 3,965 deliveries in August, which is the best monthly performance ever.  Third-quarter deliveries are also expected to surpass the 10,000 mark comfortably.

A lot of the company’s success is invariably linked with the government. It appears that Nio is the Chinese governments pick in the EV market. Strategic investments from state-owned companies pushed the company out of its financial rut. Additional support in the form of government subsidies and favorable policies will continue to push the company forward. Nevertheless, Nio must continue to perform the way it has to remain in the government’s good books.

However, the domestic EV players in the Chinese market will have to come up to the growing expectations of the government. The Finance Ministry continues to intensify its subsidy requirements for EV companies, therefore only the best will survive. Nio has done a great job so far of being in line with these requirements.

Long-term Plays in the EV Sector

Most EV companies would love to mirror Tesla (NASDAQ:TSLA) in every virtually every facet of the business. Nio, on the other hand, seems to be carving its unique path to gain a competitive advantage in the industry. It aims to build an ecosystem and community which sets it apart from its competitors.

Apart from its design differences with Tesla, its battery swap technology is perhaps its most distinctive feature. Its battery swap technology allows its users to swap batteries in no time. The service allows users to save a lot of time compared to charging the battery.  The company has also been building the infrastructure to support its ecosystem through Nio houses and spaces.

Additionally, Nio is also looking to play a vital role in the expansion of AV usage. The company will be using Mobileye, Intel’s (NASDAQ:INTC) self-driving mechanism for its AV line 2022. Additionally, it has also won a contract to supply Mobileye’s robotaxis across the world. Mobileye hopes to launch the business commercially by 2022. Once the business gains traction with customers, it is expected to deploy over a thousand vehicles in each major city.

Final Word on Nio Stock

There’s nothing really to complain about at this stage if you’ve invested in NIO stock. Revenues are growing by the ten-fold despite the economic impact of the coronavirus pandemic. It appears that it would continue to surpass expectations in the third quarter as well, with revenues expected to exceed 10,000 deliveries again. Hence, Nio stock is flying high, and its best to grab it while it’s trading at a slight discount to its mean price target.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article

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