After a brief fling with bankruptcy in 2019, Nio (NYSE:NIO) stock rose from the ashes to become one of the top players in the electric vehicle market.
The company now commands a valuation greater than major auto powerhouses.
Nio’s surge was largely a result of the market sentiment towards electric cars. With Tesla (NASDAQ:TSLA) gaining momentum in the U.S, investors looked to China where a mass EV movement was emerging.
Fast-forward to the end of 2020, Nio stock saw 11-fold as gains topped 1000% for the year.
Coming in 2021, however, Nio’s share price has cooled considerably from its highs. While the company is still a top EV player, investors remain on the fence due to rising competition from other EV markets.
Adding to this, a global chip shortage has dampened Nio’s short-term growth.
However, the EV maker delivered strong returns in its previous quarter and is poised for growth once it gets over the supply chain speed bump.
To that end, I would say investors should hold on to Nio stock to benefit from outsized gains in the next quarter.
Nio Stock Delivers a Mixed Bag of Results
Nio reported mixed results in its first quarter of FY21. The damper was earnings per share (EPS) that came in at -$0.48, missing estimates by $0.33.
However, revenue was recorded at $1.22 billion and surpassed the estimated $160 million. Vehicle revenues, which account for a majority of Nio’s total revenue, came in at an impressive $1.13 billion.
The highlight of Nio stock earnings was its vehicle deliveries in April which amounted to 7,102 units. This reflects a 125% increase year-over-year and indicates that demand for Nio’s vehicles continues to remain strong.
As of April, the company delivered a total of 102,803 vehicles.
The margin in this segment was at 21.2% which was up from -7.4% a year ago. Nio attributes this surge to a higher than the average selling price and low material costs.
While there is demand for its cars, the EV maker stated supply chain challenges will impact its bottom line.
As for Q2 guidance, Nio hopes to deliver 21,000 to 22,000 cars in the second quarter which would be a 5% to 10% increase from Q1.
Revenues for the next quarter also expect to land between $1.24 billion to $1.29 billion. In terms of growth, Nio plans to invest in its core technologies and recently introduced its Nio Autonomous Driving (NAD) platform, set to launch in 2022.
Nio’s core results were impressive but the looming global semiconductor shortage will impact its short-term growth.
A Semiconductor Shortage Dampens Nio’s Rally
Nio’s string of new partnerships with companies like Sinopec and new autonomous driving initiatives have done little to improve its market position.
Shares of the automaker have dipped 29% since the start of the year. This is in contrast to market sentiments with experts predicting a major surge in auto demand in the coming months.
However, the recent decline has little to do with the demand for vehicles and more to do with raw materials supply.
EV demand has clogged the supply chain of auto-part makers, partially because of trouble at Renesas Electronic Corp (OTCMKTS:RNECY) the fire-damaged auto plant that is the major supplier of auto chips.
Many automakers were forced to halt production. Nio had to shut down its facility in late March but managed to meet guidance for April deliveries.
However, it is worth noting that the 7,102 deliveries were 2% lower from March. Nonetheless, investors remain bearish on the stock as the semiconductor shortage is expected to impact the company’s deliveries in the coming months.
The Bottom Line on Nio Stock
Nio’s short-term outlook doesn’t look too great and understandably so. The supply chain issues and chip shortage will lower delivery rates in the coming months.
However, we could look at this from a glass half full perspective and say that the lack of deliveries is no fault of the company’s. As the economy revives from the pandemic, demand across industries is expected to boom.
Based on this consensus, I would say Nio stock has a positive long-term outlook.
Investors who are willing to hold on to the stock as it dips lower will benefit from strong gains in the next year. Nio is a Buy on the dip or a Hold for current investors.
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020.