Electric vehicle maker Nio (NASDAQ:NIO) is becoming a popular stock in the United States without delivering a car on these shores. At the same time, shares of Nio stock have been climbing despite the company’s consistent losses.
Both of these trends will likely continue.
The lack of a profit apparently doesn’t faze investors who see that, despite its losses, investing in Nio stock is investing in an increasingly viable future for transportation.
With that in mind, they place some of their money as a bet on the Chinese company’s prospects as the electric-vehicle trend gathers steam, so to speak.
My InvestorPlace colleague Lou Carlozo recently described this as “Niomania.”
Nio Stock and Profit Expectations
Once upon a time, the basic expectation was that profits would be earned before investors would reward the company by pushing the share price higher. It was sort of like the Law of Gravity. Sure, you can defy gravity but the task requires energy and momentum.
However, like childhood stories that begin with that well-known phrase, reality is different. Today’s market rewards several companies whose earnings haven’t made it to the green zone.
And, in the electric vehicle category, the lack of a profit is verging on tradition. Tesla (NASDAQ:TSLA) is a prominent home-grown example. Investors haven’t let the rare taste of profitability get in their way.
Meanwhile, the company is delivering cool cars and SUVs as it pioneers the way for electric vehicles to become more mainstream in this country. Sand, to be sure, Tesla is far ahead of other EV hopefuls seeking to enter the U.S. market, including the established names.
In August, Nio said it lost about 16 cents per share during the second quarter. The forecast for the third quarter is a loss of about $1.23 per share.
October has been a trick-or-treat month for Nio stock. On Oct. 16, shares posted a 52-week high of $29.40 after several weeks of steady climbing. Interestingly, the stock’s 52-week low was $1.36, which was posted on Oct. 30, 2019. No doubt investors are happier with the more recent treat.
Playing the Long Game With Nio Stock
One reason investors aren’t sweating the losses at this point is Nio is an emerging company working in an emerging transportation segment.
Internal combustion engines have reliably powered vehicles for a long time. But that doesn’t the quest for something better won’t alter the long-term picture. Because this is exactly what is happening. Increasingly, electric vehicles are appealing alternatives with performance, operational savings and no pollution.
In comparison to the U.S., China is on its way to mainstream electric vehicles. Nio aims to dominate this market, and the company seems to be building the momentum to succeed.
Here’s an example. During the aforementioned second quarter, Nio delivered 10,331 vehicles. This was a significant increase (nearly 200%) from the same period a year ago, and an impressive production gain from the first quarter’s 3,831 vehicles.
When I last wrote about Nio, I said its efforts go beyond making cars. The company has shrewdly developed a mass market brand that includes a social component that is very appealing to younger up-and-coming car buyers.
These customers are plentiful in China’s growing economy. And they enjoy the Nio House locations with co-work spaces and areas to socialize. The company also has a successful fashion lineup that strengthens ties with the vehicle brand.
Nio also is addressing the issue of charging the batteries. It has a monthly lease system referred to here as a “battery-as-a-service” program. Participants have access to a network of stations where specially-trained Nio crews will remove the depleted battery and replace it with one fully charged. This replacement is completed in a matter of minutes.
Not only does this service reinforce customer loyalty to Nio, the leasing program also is a source of recurring revenue for the company.
The Bottom Line
Shanghai-based Nio is an electric vehicle producer serving the premium market in China with cars and SUVs that boast style and innovation.
Investors in the U.S. can buy shares in the company and lately, Nio stock has been gaining altitude. Nio is global in its approach, with sections of the company based in several countries, including a software division in San Jose, California.
Last August, I wrote that Nio was a good candidate for a long-term portfolio and that assessment continues today. The company appears to be doing many things right.
On the date of publication, Larry Sullivan did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
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.