Shares of Chinese electric vehicle (EV) giant Nio (NYSE: NIO) have slowed down considerably in the past three months. The correction in EV and Chinese stocks has impacted Nio stock, which shed 44% of its value in the past three months. However, its growth catalysts remain intact, and the recent dip is an excellent opportunity for investors to buy into the weakness.
Nio’s growth story in the past year has been nothing short of amazing. Its top and bottom line grew by 173% and 30% respectively in 2020. A lot of it was due to its spectacular showing in the fourth quarter, benefiting from the reopening of the Chinese economy. As a result, its revenues in the fourth quarter rose by an incredible 149.3% on a year-over-year basis.
With multiple tailwinds in play, it is poised to have an even better 2021. Its first-quarter results are indicative of that, where revenues have risen by an unbelievable 482% year-over-year. Analysts’ price targets for Nio stock are more than 72% higher than its current price. With that being said, let’s dive a little deeper into the Nio growth story.
Blow-out First Quarter Report
Nio’s investors couldn’t have asked for a better first quarter. As mentioned earlier, Its revenues for the quarter came in at $1.2 billion, representing a 482% increase on a year-over-year basis. Furthermore, deliveries were at 20,060 for the quarter, representing a 422.7% increase from the same quarter last year. Additionally, deliveries for all its models, including the ES8s, ES6s and EC6s, improved significantly.
Moreover, gross margins rose to 19.5%, which gives it increased leverage down the road. Improved leverage stemming from higher deliveries can effectively drive the company towards profitability. If it continues on this trajectory, we could see it turn a profit as early as the fourth quarter; if the chip shortage eases up and seasonal demand is exhibited.
Looking ahead, the EV maker expects revenues for its second quarter to be at $1.24 billion to $1.29 billion. Additionally, it states that deliveries could fall between 21,000 and 22,000. This represents a substantial increase of 103% to 113% on a year-over-year basis.
Nio has several positive developments in play that will underpin its future success. Firstly, in its fourth-quarter earnings call, the manufacturer teased its European expansion plans, specifically Norway. “NIO Norway” is expected to be the first step in the company’s plans for global domination. Once it solidifies its position in the country, it will add more locations in Europe and progress towards North America.
Another positive for the company is its continual investment in expanding its capacity. It recently started building its new plant in Xinqiao Industrial Park as part of NeoPark, which will become home to several companies. Nio is a major investor in the project contributing upwards of $1.5 billion.
Perhaps the most promising element of Nio’s growth story is its power segment. It mainly offers a “power service system with chargeable, swappable and upgradable batteries”. However, the segment continues to evolve as the company adds on new products and services to the segment. Its power network is expanding with every passing quarter and currently stands at over 200 swap stations and 142 supercharging stations.
Moreover, the company recently unveiled its “Power North” plan, which is another game-changer in the industry
“in three years, it will deploy a total of 100 Power Swap stations, 120 Power Mobiles, 500 Power Charger stations with over 2,000 Power Chargers, and over 10,000 destination chargers in eight provinces and autonomous regions”
Nio will likely see more adoption of its battery as a service (BaaS) technology through effective network expansion, thereby growing its recurring revenue streams.
Final Word on Nio Stock
Nio has been one of the most impressive EV stocks in the past year or so. It has cemented its position as the leading EV brand in China, and now plans to make its mark on the international circuit. Moreover, it continues to innovate with its power and services segments to separate itself from the pack. With yet another stellar quarter, it’s tough to question Nio’s brilliance. Hence, the dip in its price is an excellent opportunity to invest in a long-term EV winner.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.