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Here’s Why Nio Stock is Trending Higher
Stock Analysis & Ideas

Here’s Why Nio Stock is Trending Higher

Story Highlights

Nio stock is trending higher due to an improving operating environment. Production ramp-up and actions taken to combat rising costs are positives.

A confluence of factors, including supply constraints, production challenges, cost headwinds, regulatory pressure, and COVID-led restrictions, took a toll on the shares of the Chinese EV (Electric Vehicle) maker Nio (NYSE: NIO). 

However, after several months of underperformance, Nio stock has begun to recover, jumping more than 37% in one month. Let’s look at the factors fueling the recovery in Nio stock. 

Is the Worst Over?

While the operating environment remains challenging, a series of positive developments led to this appreciation in Nio stock. 

During the Q1 conference call, Nio announced that its supply chain and vehicle production have returned to normal starting from June. Moreover, its vehicle deliveries are also back on track in Shanghai and several other key markets. 

It’s worth mentioning that Nio delivered 5,074 and 7,024 vehicles in April and May. Moreover, it now expects to deliver 23,000 to 25,000 units in Q2. This implies that Nio vehicle deliveries will mark a solid sequential improvement in June, which is positive. 

While Nio’s vehicle margins dipped in Q1 and could remain challenged in Q2, management remains upbeat and expects margins to bounce back in Q3 of this year. 

Nio expects raw material prices to soften a bit in the coming months. Moreover, to mitigate higher costs, Nio is adjusting product prices and is focusing on increasing production output. These measures, along with higher deliveries, could cushion its margins in the coming quarters. 

What’s more? Highlighting the easing regulatory pressure, Nio’s CEO, William Li, stated, “Governments at all levels in China have also introduced a positive policy” that would support higher EV demand. Li added that the favorable policy support “will further promote the up trading and new purchase of premium smart electric vehicles.” This is a positive for Nio. 

Bottom Line   

Strong demand, an improving operating environment, including easing regulatory headwinds, new product launches, and production ramp-up, indicate that better days could be ahead for Nio. However, uncertainty related to the pandemic could play spoilsport.

Nevertheless, Wall Street analysts are Bullish about NIO stock. It has received 14 unanimous Buy recommendations for a Strong Buy consensus rating. 

Further, the average Nio price target of $36.75 implies 63% upside potential. Also, Nio stock has an outperform Smart Score rating of 9 out of 10 on TipRanks

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