Last Thursday, Nio (NYSE:NIO) reported earnings after market close. Going into earnings, shares of NIO bounced around dramatically over the week.
Early in the week, exuberance heading into earnings had NIO stock trading above $43 per share. On Thursday, shares dropped below $39 per share as investors priced in weak forward guidance on production due to supply chain issues.
On Friday, shares bounced back, closing the week just shy of $40 per share.
This past week was set up to be a higher-volatility event than normal for investors. Indeed, despite numerous massive beats, various high-profile tech names dropped on otherwise incredible results.
Accordingly, long-term investors may not be dismayed by these results. Overall, I think the company reported decent earnings, and this stock continues to have a ton of potential. That said, let’s dive into what was reported and why this stock moved the way it did this past week.
Mixed Bag of Earnings Sends NIO Stock On a Volatile Ride
Nio reported a significant top line beat of 6.7%, bringing in 8 billion Yuan compared to consensus estimates of 7.5 billion Yuan.
Gross margins increased substantially, coming in at 19.5% this past quarter. This beat analyst expectations by a wide margin (approximately 3% higher), and also represented a massive boost from the company’s margins last year (-12%).
Vehicle deliveries essentially hit analyst expectations, with 20,060 deliveries made in the quarter compared to 20,070 deliveries expected.
Accordingly, given these numbers, it can be hard to fathom why this stock ended the week down.
As mentioned, relatively poor forward guidance was given for the company’s second quarter. Nio’s expected deliveries of between 21,000 and 22,000 vehicles this coming quarter translates into revenue growth of between 119%-129%. That’s pretty decent.
However, while the company’s CEO did suggest these numbers were in line with previous estimates, it appears the market was pricing in even higher growth. Additionally, it appears the global microchip shortage that has plagued this sector thus far is causing further concern that Q2 numbers could come in near the lower-end of this range.
Key Takeaways for Investors & Bottom line
Nio is an EV player with a dominant position in the Chinese EV market. This is widely expected to be the largest global EV market, and is one that’s already heating up in terms of position. As far as long-term EV growth plays go, Nio deserves consideration for most investors, particularly in light of these strong results.
However, the result of Nio’s incredible growth rate and its current market position is a sky-high valuation multiple. Any sort of indication growth could slow is enough to provide investors with a down week on otherwise incredible earnings.
I anticipate demand will remain significantly elevated for Nio’s offering over the long-term. Additionally, I anticipate this chip shortage will be a near-term issue. However, recent reports indicate this chip shortage could be in play for a couple years – a sufficiently long amount of time to cause EV stocks some serious damage in the near-term.
Given the chip shortage issues plaguing the EV sector, NIO stock could become more attractive before the year is out. There remains the possibility that this slide isn’t over.
I’m of the belief that as long as NIO is able to traverse these chip shortages over the medium-term, this stock should do well. Few global companies will be able to touch Nio in terms of growth. Certainly, I believe the company’s long-term outlook in the EV sector is best-in-class.
However, investors may want to be patient with this stock. If a better entry point becomes available, having dry power to allocate to NIO may be useful.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.
