Nio (NIO) is an electric vehicle (EV) manufacturer based in China. I am bullish on the stock.
Due to COVID-19 lockdowns, it’s been difficult for many Chinese companies to conduct business in 2022. Authorities in Shanghai have said that they’ll take measures to reopen the city, but getting China back on its feet, financially speaking, could take a while.
On top of all that, prospective investors must consider the tough regulatory environment in China. It’s no secret that Beijing is cracking down on a number of technology-related businesses due to cybersecurity concerns. These concerns might dissuade some traders from holding shares of Nio stock.
As we’ll discuss in a moment, it’s also scary to watch Nio stock as it relentlessly drifts lower. Still, the outlook isn’t as bad as it might seem. After checking Nio’s financials, you may decide to jump into the long side of the trade. Plus, even as China’s government cracks down on the nation’s tech businesses, it’s also taking steps to facilitate the EV revolution, and that’s good news for Nio.
On TipRanks, NIO scores a 9 out of 10 on the Smart Score spectrum. This indicates a high potential for the stock to outperform the broader market.
Delivering Results, Once Again
Time and again, Nio quells investors’ concerns with robust vehicle delivery numbers. It’s been amazing to witness Nio’s recovery since early 2020, when some folks questioned whether the company would survive as a business.
Somehow, the financial markets haven’t fully appreciated Nio’s progress. Surprisingly, Nio stock has fallen from its 52-week high of $55.13 to the $18 area. There have been small share-price rallies along the way, but investors don’t seem to be convinced of Nio’s growth story quite yet.
What’s it going to take to convince them? Nio’s May 2022 vehicle delivery numbers indicated good progress despite the impact of COVID-19 and supply-chain constraints. With 7,024 vehicle deliveries in May, Nio’s 2022 year-to-date total jumped to 37,866 vehicles, representing a 11.8% year-over-year increase.
With that, Nio’s cumulative vehicle delivery total reached 204,936. Just in 2022’s first quarter, the company delivered 25,768 vehicles, which marks a 28.5% increase compared to the first quarter of 2021.
As you might expect, these delivery numbers have translated to improving top- and bottom-line financial results. During 2022’s first quarter, Nio increased its total revenue by 24.2% year over year, to 9.91 billion RMB (roughly $1.56 billion). So far, so good.
Turning to the company’s bottom line, Nio did post an earnings loss for the quarter, but it’s showing signs of improvement. Specifically, Nio’s Q1 2022 net loss of 18 cents per American share is a lot better than the prior-year quarter’s loss of 48 cents per share. Hopefully, the company will continue to narrow its profitability gap in the coming quarters.
Finally, it’s worth noting that Nio’s cash and cash equivalents, restricted cash and short-term investments totaled 53.3 billion RMB (around $8.4 billion) as of March 31. This suggests that the company is well-capitalized to continue its operations into the foreseeable future.
China’s Revolution – and Nio’s, Too
There’s no denying that it can be challenging to conduct business in China as Beijing maintains strict control over tech-related companies. At the same time, however, China’s government is proactively accelerating a shift away from traditional internal combustion engine vehicles, and toward cleaner cars.
When it comes to environmentally friendly vehicle technology, Nio is among the vanguard of the movement. As evidence of this, Nio reportedly plans to invest 218.5 million RMB, or roughly $32.8 million, to build lithium-ion battery labs as well as a battery cell pilot production line in China’s city of Shanghai. Anticipated to begin between August and October of this year, these projects will comprise 31 research and development labs.
Meanwhile, China’s government is taking its own steps to advance the vehicle electrification revolution. In particular, China’s Ministry of Finance is reportedly implementing a tax cut for certain small-engine EVs in order to incentivize sales of these vehicles. It’s also been observed that China has offered a subsidy of 10,000 RMB (or around $1,500) for drivers who switch from a traditional vehicle to an EV by the end of this year.
These measures send a clear signal: China is serious about transitioning drivers from vehicles that burn fossil fuels to cleaner, more modern cars. Thus, it appears that the Chinese government has Nio’s back, so to speak. With gasoline prices increasing, don’t be surprised if governments around the world take similar actions to promote EV sales – and if this happens, it’s bound to give Nio stock a much-needed boost.
Wall Street’s Take
Turning to Wall Street, Nio has a Strong Buy consensus rating, based on 14 unanimous Buy ratings assigned in the past three months. The average Nio price target is $39.73, implying 119.02% upside potential.
The Takeaway
Nio’s delivery numbers are undeniable, and the company’s revenue growth is impressive. Furthermore, Nio’s bottom-line stats aren’t perfect but they’re definitely improving.
Sure, it requires courage to hold Nio stock while the price is on a long-term downtrend. Yet, the financial data suggest that a turnaround should be imminent – and with China’s government supporting EV sales, the bull case for Nio stock is stronger than the skeptics might think it is.
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