The big, scary semiconductor shortage — wherein electric vehicle makers had to stop producing cars because they couldn’t get their hands on enough chips to make electric vehicles — has weighed on NIO (NYSE:NIO) stock dramatically in recent months, since the shortage has effectively plateaued what was a quickly ramping growth trajectory for the Chinese premium EV maker.
Once upon a time, NIO’s deliveries were growing by 5%-plus each month, and NIO stock was flying high near $70. But, over the past few months, NIO’s monthly delivery volumes have retreated — down 2% in April, and down 5% in May. As they have, high-flying NIO stock has come crashing down — from $70 in early February, to $30 in early May.
But the tide is starting to turn.
Specifically, NIO reported today May delivery numbers that — while they weren’t good themselves — implied that the worst of the semiconductor shortage impact on NIO is in the rearview mirror, and that the company will sprint back into hypergrowth mode this month. That’s why NIO stock is up 10% on the day.
It’s also why NIO stock is set to roar higher over the next few months.
Here’s a deeper look.
NIO Stock: The Worst Is Over?
The story at NIO over the past few months can summarized as follows: NIO can’t get its hands on enough semiconductor chips to keep up with soaring demand for its vehicles in China, so the company’s once rapid growth trajectory has fallen flat in recent months.
This trend continued in May. In fact, it got worse in May: NIO’s May delivery volumes came in at 6,711, down 5.5% month-over-month — following a 2.1% decline in April.
But, hidden within the report, management also reiterated that — despite the weak May numbers — second quarter deliveries will come in at around 21,500. That implies 7,750 deliveries in June. That would be up 15.5% month-over-month, and would also represent NIO’s biggest monthly delivery volume ever.
In other words, while NIO’s delivery volumes have been retreating for several months, they are expected to soar higher in June.
Is the worst of the semiconductor shortage in the rearview mirror?
It certainly appears so. Helping sentiment is also the fact that world’s largest and most important factory for auto industry computer chip production — the Renesas factory in Japan — is already back to 88% production capacity after a fire in March temporarily shut down the factory. Full production is expected by June.
Big picture: It increasingly appears the worst of the semiconductor shortage impact on NIO is over, and therefore, NIO stock should be able to fly higher from here.
Huge Upside Ahead
By my numbers, NIO stock has incredible upside potential from current levels.
I broadly believe that NIO is rivaled only by Tesla (NASDAQ:TSLA) and Lucid Motors (NASDAQ:CCIV) in terms of EV technology and brand equity, and is the only one of those three EV makers that is based in China — and therefore, has a “home court advantage” in the world’s largest auto market.
Given that belief, I think it is very likely that NIO turns into a very important player in China’s premium auto market at scale, nabbing something like 8% market share. I also think it is very likely that NIO experiences good success in international market, controlling something like 3% to 4% of the auto market outside of China.
Assuming margins hold up thanks to economies of scale and strong pricing power, my modeling says NIO has a runway to $5 in earnings per share by 2030 — a number which I think warrants a $60-plus price tag today for NIO stock.
Bottom Line on NIO Stock
NIO stock is one of my favorite tech stocks to buy today, for long-term disruptive potential. It’s a name which I believe can soar several hundred percent from current levels, as the world shifts from gas-powered to electric cars.
But NIO stock is just one of my top electric vehicle stocks, which represent the cream-of-the-crop when it comes to disruptive technological innovation in EVs. These companies all feature second-to-none management teams and massive long-term potential.
Each of these next-generation mobility stocks could post Tesla-like returns, including a secret startup that’s spearheading the self-driving revolution, and a company I consider my EV “sleeper” stock of the decade.
To see my entire lineup of innovative next-generation EV stocks, click here.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
By uncovering early investments in hypergrowth industries, Luke Lango puts you on the ground-floor of world-changing megatrends. It’s the theme of his premiere technology-focused service, Innovation Investor. To see Luke’s entire lineup of innovative cutting-edge stocks, become a subscriber of Innovation Investor today.