Best Stocks for 2021: Unphased by Semiconductor Shortage, Nio Looks Ready to Race

Editor’s note: This column is part of InvestorPlace.com’s Best Stocks for 2021 contest. The Reader’s Choice pick for the contest is NIO (NYSE:NIO) stock.

A Nio (NIO) sign and logo on a tan concrete building.
Source: Sundry Photography / Shutterstock.com

Electric vehicle (EV) companies have had a bumpy ride in 2021. Big surges in the sector have been tempered by volatility and semiconductor shortages, but there’s also the boon of President Joe Biden’s infrastructure plan and its EV-charging investments. And of course, when it comes to Nio, there’s the added frustration of Biden’s ongoing trade war with China.

But while Nio might not have had the most inspiring start to the year, things have picked up for the EV maker in the second quarter. Strong delivery numbers for the first half of the year bode well, as do increasing vehicle margins. Earnings results for the first quarter were also promising. And the company has a number of expansion plans already underway, notably in Norway and Hefei in China’s Anhui province.

So what’s been going on with Nio in the first half of the year? And where is it going next?

Since we last checked on Nio, the company has produced its 100,000th vehicle. Additionally, it began operating a second-generation battery-swap station in Beijing. The company has renewed its joint manufacturing agreements. And it also received European Whole Vehicle Type Approval for its ES8 model, an important milestone in its expansion into European markets.

First-quarter earnings results saw a much larger loss than anticipated. But that number was down compared to both the previous year and the previous quarter. Vehicle deliveries were up 423% year-over-year, and vehicle margins expanded by 400 basis points. That meant revenue growth of 482% YoY.

Of course, there’s the ongoing semiconductor shortage, which Nio said last quarter would likely impact production in Q2 of 2021. While the company has yet to report those earnings, delivery numbers for Q2 of 21,896 vehicles were slightly above the 20,060 vehicles delivered in Q1. And although the shortage remains a concern for traditional automakers and EV producers alike (as well as for other industries), the numbers suggest that investors can remain optimistic about Nio’s trajectory for vehicle deliveries in Q3 and Q4.

Investors can also look forward to the company’s first Norwegian outpost opening in Q3. Four more outposts in that country are set to open in 2022. This European excursion is the company’s first expansion abroad, and positions the company to go head to head with Tesla (NASDAQ:TSLA) and its German Gigafactory in E.U. markets sooner than later.

It also stands to reason that expansion into Nordic markets could help American consumers see Nio more as a cosmopolitan, international brand and less like a Chinese Tesla. Given ongoing political tension (and less common, but still persistent, xenophobia), that could be an important branding move for the company down the line.

As we reported back in April, the company has filed paperwork for a secondary listing on the Hong Kong Stock Exchange (HKSE). While that listing has yet to come to fruition, a similar listing this past week by XPeng (NYSE:XPEV) saw that company raise $1.8 billion in the foreign market, suggesting that Nio and compatriot Li Auto (NASDAQ:LI) could raise significant capital when they debut on the HKSE.

The Biden infrastructure plan looks set to benefit EV makers across the board, but particularly Tesla competitors. And rumors have been swirling regarding Nio’s entry into American markets. However, until those rumors are substantiated, investors are better off keeping an eye on the short float in NIO stock.

When it comes to EVs, there’s a lot of chatter over which names will survive to become the automakers of tomorrow. When it comes to buying stocks, Nio is a strong contender that belongs in any portfolio.

On the date of publication, Vivian Medithi 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.

Article printed from InvestorPlace Media, https://investorplace.com/2021/07/best-stocks-for-2021-unphased-by-semiconductor-shortage-nio-looks-ready-to-race/.

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