Neither the pandemic nor the chip shortage has been able to slow the growth momentum of the electric-vehicle industry. EV makers are rapidly expanding and are making strong moves to grab a larger share of the market. One of the sector’s most attractive names is Nio (NYSE:NIO).
Nio is firing on all cylinders, and. although one of its EVs was involved in a recent, well-publicized, fatal accident, the company has done damage control and is back to focusing on growth. NIO stock dipped after the news about the accident but has recovered recently.
Trading near $39 today, Nio stock is nowhere close to its 52-week high of $66, but it has the potential to exceed $50 soon. A lot is working in favor of the company, so the stock should climb higher.
I believe that the automaker’s strong Q2 results and its app will have positive impacts on the stock in the short-term. Let us take a look at the case for investing in NIO stock.
Damage Control
In an attempt to control the damage to Nio caused by the fatal accident, the company has added a new feature called Pilot exam to its app. Specifically, it is requiring the drivers of its EVs to take a test on the app. The app has a six-minute video that showcases the assisted driving features of the EVs. It notes that the system does not provide truly autonomous driving, and the owner must complete ten quiz questions on the app.
The video states that drivers should maintain control of their vehicles when they use assisted driving features. Adding the Pilot exam to the app is a smart, well-timed move by the company.
Nio did not take too long to respond to the concerns about the safety of its cars. That shows that the company is committed to the safety of the drivers and is making the right moves to maintain its strong reputation in the EV industry. When it comes to safety issues, Nio is not alone; even Tesla (NASDAQ:TSLA) faced concerns about the safety of its models in the past.
Strong Fundamentals
Nio recently reported Q2 earnings that beat analysts’ average estimates. Its revenue soared 127% year-over-year, and its loss per share came in at 6 cents, while its gross profit was $243 million, which is no small feat.
Investors always look at the fundamentals of a company, and Nio is strong in that area. As of June 30, the company had cash and cash equivalents of $7.5 billion. Nio’s research and development expenses soared 62% YOY to $136 million. The increase in R&D expenses was attributed to the costs of developing new technologies and products.
The company had already beaten analysts’ average Q2 vehicle delivery projections. It delivered a total of 21,896 vehicles in Q2, leaving it poised to report strong Q3 revenue.
For Q3, the company expects to deliver between 23,000 and 25,000 EVs and generate revenue if $1.380 billion to $1.491 billion. Considering the company’s recent growth rates, I believe that it will be able to meet its Q3 guidance.
The Bottom Line on NIO Stock
All in all, NIO stock is a great EV play. Fundamentally, the company is strong and has enough liquidity to invest in R&D. There is strong demand for its product, and its market is massive.
The impressive Q2 results prove that the company is strong and show that it has the potential to grow its operations in the coming years. Nio could be one of the top EV makers of the decade.
Every dip of NIO stock is a good opportunity to buy the shares. At its current level, NIO stock is trading at a discount and is worth adding to your portfolio.
On the date of publication, Vandita Jadeja 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.
