After a bruising first half to the year, Chinese electric vehicle maker Nio (NYSE:NIO) and NIO stock looks set for a recovery in the second half of 2021.
First, the Shanghai-based company reported strong first-quarter results that showed Nio’s revenue skyrocketed 481% from a year earlier, and then the carmaker announced that it is doubling its production to 240,000 electric vehicles a year, or 20,000 per month.
Nio is also expanding into several key European markets later this year, beginning with Norway. The positive news has begun to lift NIO stock off the bottom it reached on May 13 when the share price closed at $31.22, down 54% from its 52-week high of $66.99 reached in early February.
Earnings Results
Despite navigating choppy waters this year, it’s important to remember how far Nio has come in the past year. The company’s shares have delivered a total return of 820% over the past 12 months compared to a 38% return for the S&P 500 index.
Much of the share appreciation came as Nio emerged as the leading electric vehicle manufacturer in China, the world’s biggest car market. Analysts continue to see Nio as the leading rival to America’s Tesla (NASDAQ:TSLA), which is currently the biggest pure play electric vehicle maker in the world.
Nio continues to demonstrate impressive growth. For the first quarter of this year, NIO’s vehicle deliveries came in at 20,060, narrowly missing analysts’ expectations but up 423% compared to the first quarter of 2020. Vehicle sales for the quarter were totaled $1.1 billion, up 490% from the same three-month period a year earlier. Nio has also provided strong forward guidance, saying it anticipates delivering 21,000 to 22,000 vehicles in the current second quarter and that it sees revenues of between $1.2 billion and $1.3 billion.
Growth and Expansion
Nio is positioned to continue its aggressive growth and capitalize on its plans to expand beyond China’s borders. The company has extended its current manufacturing deal for another three years with Chinese state-owned automaker Jianghuai Automobile Group in the industrial city of Hefei.
The extension comes with a pledge from Jianghuai Auto to double its factory’s production of Nio vehicles to 20,000 a month. The production extension runs through May 2024.
The increased production is key to Nio’s plans to expand into Norway in this year’s second half, followed by other European markets such as Germany. The company has said that it sees Europe as the logical next step in the company’s expansion plans.
Nio already has a global design center based in Munich, Germany and an engineering research and development center in Oxford, England. The company has announced that it will open its first European showroom in Oslo, Norway later this summer. Demand for the company’s electric sedans and SUVs remains strong.
Potential Risks
While Nio is moving in a lot of positive directions and its stock is on an upswing, there remain potential risks for the automaker and the broader electric vehicle space.
The main risk continues to be the shortage of semiconductors and microchips that are essential components in all vehicles, used for everything from onboard navigation systems to air bag deployments. Nio has acknowledged that the global chip shortage will slow its production, but has said it expects the worst of the shortage to occur in this year’s second quarter followed by a rebound in coming months.
Other potential risks for Nio and its shareholders continues to be the softening of investor interest in electric vehicle stocks, the move away from technology companies in favor of value stocks, and the ongoing political and regulatory tensions between the United States and China. Those tensions have contributed to depressed share prices for several leading Chinese companies, including Alibaba (NYSE:BABA) and Baidu (NASDAQ:BIDU).
Buy NIO Stock Off the Bottom
While risks remain, they are not unique to Nio. Many of the issues impacting Nio are affecting all automakers.
With strong results, a doubling of its production capacity and its expansion into Europe, now is a good time for investors to take a position in the Chinese electric vehicle manufacturer.
Signs that Nio bottomed just before hitting $30 per share and has risen 16% since mid-May should provide impetus for investors to act now and catch Nio on the upswing.
On the date of publication, Joel Baglole held long positions in NIO, BABA and BIDU. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
