Chinese EV giant Nio (NYSE:NIO) wrapped up its third quarter with a solid showing in September, delivering over 10,000 vehicles. It appears that the company has moved past the supply constraints, which impacted deliveries of late. Demand levels remained robust, which set up NIO stock for an impressive fourth quarter.
Nio stock is in a slump, having lost 22% of its value in the past three months. Moreover, in the past nine months, returns have been at a -43%. The trajectory that the stock has taken is primarily due to the global chip shortage. However, the chip shortage is expected to ease up in the coming months, which will result in a significant rebound.
NIO stock currently trades at a 62% discount based on analyst estimates, which makes it an attractive buy at this stage.
Capping Off the Quarter In Style
Nio’s September deliveries shot up 125.7% on a year-over-year basis to 10,628 deliveries. For the third quarter, it delivered 24,439 vehicles, falling in the higher end of its guidance of 23,000 to 25,000 units.
The ES6 led to a surge in delivery numbers, totaling 5,260 units. The total was 124.6% higher on a sequential basis. Moreover, the deliveries reached over 3,000 units for the first time for EC6 in a particular month.
Production capacities are of paramount importance for the fourth quarter. It had forecasted production levels to be around 8,000 to 9,000 units back in August. Nio states that it “has been “working closely with our partners to improve the overall supply chain production capacity.”
If Nio can iron out these supply chain and production troubles, its deliveries for the fourth quarter could exceed 30,000 units or higher. However, October’s deliveries will give more clarity about management estimates. Margins are expected to remain robust unless there is a sizeable increase in material costs. Though, the company will remain unprofitable as it looks to develop the ET7 and move forward with its international endeavors.
The company recently launched the ES8 in Norway with deliveries showing in the fourth quarter in terms of other growth drivers. Moreover, the ET7’s production has begun ahead of its planned launch in January next year.
The Potential For BaaS
Nio’s battery-as-a-service and battery swap (Baas) service will play a massive part in the company’s growth story. That’s mainly since it solves several of the pain points which EV customers currently have. Some of these include the high costs of battery replacement, range troubles, high upfront costs, and other related issues.
Nio offers a monthly subscription that gives drivers access to 484 swap stations. So far, it has completed over 2 million swaps. If customers sign up for its BaaS program costing $142 per month, they enjoy a $10,000 discount and get six swaps per month.
Furthermore, at any one of the company’s power swap stations, you can get a total battery replacement in just three minutes. On top of that, you have battery and electric system checks completed at every station to ensure that the battery and car are in top shape. Moreover, Nio is always working to improve its battery capacity, and the subscription is likely to offer its user’s battery upgrades as part of the deal. For instance, it is launching its 150 kWh battery in 2022, which will be available for upgrade for all subscribers of Nio’s BaaS program.
Bottom Line on NIO Stock
NIO stock has been a sluggish mover in the past few months and its EV sector peers. However, that will change fast after another blockbuster quarter, with more fireworks expected by the conclusion of this year. Additionally, its BaaS program has immense potential and is likely to be a major growth catalyst in the future.
NIO stock is a highly attractive investment option with an incredible long-term case.
On the date of publication, Muslim Farooque 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