Now may be the time to buy the dip in Nio (NYSE:NIO) stock.
In the short-term Nio should trade sideways, but the writing is on the wall: Nio is competing in hotly-contested EV markets.
If it continues to make operational improvements it should rise again eventually.
There are plenty of issues the Chinese EV manufacturer still has to iron out. Among them, profitability and stiff competition within the Chinese domestic market.
This article will discuss those later, but first let’s look at why Nio’s entry into Norway is a net win.
Norway Expansion and Nio Stock
Nio announced a few days ago that it will be entering Norway. The announcement was expected and Nio will not begin delivering cars in the Scandinavian country until September.
It will first deliver its ES8 SUV late 2021, and then its ET7 sedan in 2022.
Markets didn’t react to the news in any appreciable way, perhaps due to the timeline, but this is clearly a positive.
Even in EV friendly Europe Norway is amongst Nio’s smartest choices for expansion.
Its rich subsidy scheme can slash one-third of the price off of EVs purchased there and the country offers parking and toll discounts for EV drivers.
EV sales accounted for 54% of all new vehicle sales in Norway in 2020. Norwegian consumers purchased 140,000 new vehicles in the year, 77,000 of which were electric vehicles.
Audi’s e-Tron SUV was Norway’s top seller with 9,227 vehicles sold but Chinese manufacturers have established a footprint in the nation.
XPeng (NYSE:XPEV) delivered 100 vehicles to Norwegian consumers in December and plans to expand to other European nations.
Undoubtedly Nio won’t have any easy time competing against better entrenched and more familiar names. However, this is Nio’s first step in international expansion and will serve as a valuable test case.
China, and its 1.44 billion inhabitants make up the world’s largest EV market. Nio is a leader in the market, but it does face stiff competition.
Each of these companies is fighting for market share, and that means one thing: Sales deliveries.
Tesla is leading, although it has faltered of late. Chinese consumers registered 12,000 Teslas in March, but only 5,000 in April. The company sold just under 70,000 vehicles in China in Q1.
XPeng delivered 5,147 in April, and over 18,000 year-to-date. It is growing very fast. BYD sold 53,380 vehicles through the first three months of 2021.
Nio, on the other hand, sold 27,162 vehicles through April of 2021. Nio is by no means a clear cut winner in the Chinese EV market.
Milestones to Reach
Profitability is an issue Nio is facing as an upstart EV manufacturer. Nio has proven to investors that it can sell its vehicles.
That is a massive hurdle it has overcome and part of the reason it has received such a strong market reception.
One of the next milestones it must reach is turning its net loss positive. The bad news: It isn’t there yet. The good news: It’s making progress.
Nio’s Q1 net loss totaled $68.8 million. Investors aren’t often keen to hear that a company might approach a $300 million annual loss on a pro-rata basis. However, there is a silver lining here.
Nio’s net loss decreased 67.5% from the previous quarter, and 73.3% compared to Q1 ‘20.
Nio faces competition at home and abroad. Markets are pricing this into its shares.
It seems evident to me that Nio stock has little reason to rise immediately. I’d expect it to trade sideways until a clearer-cut winner emerges in China.
Long term I think it will still emerge as a dominant force, it’s just that now the picture is too murky.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.