What happened
Shares of Chinese electric-vehicle maker NIO (NIO -5.26%) were trading higher on Tuesday, after a Wall Street analyst upgraded the stock despite a decline in monthly deliveries.
As of 11:30 a.m. EDT, NIO's American depositary shares were up about 7.7% from Friday's closing price.
So what
In a new note on Tuesday, Citi analyst Jeff Chung raised his bank's rating on NIO's shares to buy, from neutral, while increasing Citi's price target for NIO to $58.30 from $57.60.
Chung wrote that he now sees China sales of "new energy vehicles," a category that includes electric vehicles and hybrids, rising more quickly than he had previously expected. He now expects Chinese consumers to buy 2.52 million new energy vehicles in 2021 and 7.84 million in 2025, versus the 1.79 million in 2021 and 6.86 million in 2025 he had previously forecast.
For NIO specifically, Chung expects the company's order backlogs to increase in the second quarter, which will in turn "substantially increase" its revenue and market share in the second half of the year, with new products driving additional growth in 2022.
Chung's upgrade is a big part of why the stock is up today.
NIO delivered 1,412 of its flagship ES8 luxury SUVs in May, down 7.3% from April but up 88% from May of 2020. Image source: NIO.
Now what
Chung's bullishness about NIO's order backlog is a positive way to think about the production issues that NIO has faced in the last couple of months. NIO said in a statement on Tuesday morning that it delivered 6,711 vehicles in May, a decline of about 5.5% from April that was explained by a need to reduce production amid a global shortage of semiconductors.
That was no surprise, as NIO had warned auto investors in April that it expected chip-related production disruptions in the second quarter. The good news -- there was some -- is that NIO reiterated its upbeat guidance for second-quarter deliveries, as it expects to be able to make up some of the difference in June. The company still expects to deliver between 21,000 and 22,000 vehicles in the quarter, roughly double its year-ago total.
Given that NIO delivered 13,183 vehicles in April and May, that guidance implies deliveries of between 7,817 and 8,817 in June, which would be an increase of between 109% and 136% from June 2020 and a record month for the company.
