Chinese electric vehicle (EV) companies have had a rough start to 2021. A myriad of issues combined with the general risk-off sentiment of the market has caused many of these stocks to selloff. NIO (NYSE:NIO) is no exception. So where does that leave NIO stock?
Although one of my favorite plays on the EV sector, being an investor in NIO stock has been quite testing. The stock has sold off dramatically from its $60 highs to a low of close to $30, a decline of close to 50%. However, part of being a growth investor means being able to stomach that kind of volatility. Looking at the company itself, NIO is still an exciting company to own.
Despite Setbacks, Delivery Growth Remains Solid
Unlike many other companies in the EV space, NIO already has an existing product line. The company offers five battery-powered vehicles. Its product portfolio includes sports cars, luxury sedans and full-size SUVs. Despite the issues caused by the worldwide semiconductor shortage, NIO was still able to deliver 6,711 vehicles in May 2021. This was an increase of 95.3% compared to the same time last year. Additionally, it demonstrates a healthy demand for the company’s products.
The company has maintained its delivery guidance of 21,000 to 22,000, which I believe it can hit provided the semiconductor shortage issue does not escalate any further. Cumulatively, NIO has delivered 109,514 vehicles in China.
The company is continuing to build order momentum. Citi recently upgraded the stock to a “buy,” citing sales acceleration. The company also took its first step at international expansion by announcing a plan to launch in Oslo, Norway by September this year.
A Key Competitive Advantage
The core of NIO’s technological advantage is its “battery swapping” technology. This technology has many benefits such as extending vehicle range and reducing wait times. It also allows users to easily upgrade their battery as new technology becomes available. According to the company, swapping a depleted battery for a newly charged one in one of its NIO Power Swap locations takes only three minutes.
What is key for NIO is developing this infrastructure such that it is widespread and accessible. The company is well aware of this and is building out its battery-swapping network. And it’s been executing well so far. NIO has already completed over 500,000 battery swaps in its 226 Power Swap locations.
The company recently announced a strategic partnership with Sinopec (NYSE:SHI), a major player in the oil and gas industry in China. The partnership was touted by the company as “an important milestone for further developing China’s smart EV industry.” This should serve as a confidence boost for investors who are skeptical of NIO’s battery-swapping technology.
Sinopec has more than 30,000 gas stations in China. NIO could install Power Swap stations in these existing locations allowing the company to quickly scale its operations. Sinopec could deploy as many as 5,000 swapping stations within the next few years.
Key to this rapid deployment is NIO’s Power Swap Station 2.0, which was unveiled during the announcement. This new swapping station allows users to complete a battery swap on their own without any manual intervention. The Power Swap Station 2.0 has sensors and cloud computing systems that allow the vehicle to maneuver into the station automatically. NIO states that the system can complete 312 battery swaps per day — a significant improvement over its current technology.
Investor Takeaway on NIO Stock
I remain bullish on the potential of NIO. While NIO stock has not performed as well as I would have liked this year, the company continues to execute well on its vision.
On the date of publication, Joseph Nograles held a LONG position in NIO.
