It's normally not a difficult decision for what an investor should do when a highly valued growth stock stops growing. People typically run for the hills, and the stock price crashes. But after Chinese EV maker Nio (NIO 0.25%) reported a nearly 30% year-over-year drop in April deliveries, investors took it in stride.
That's because the problem is likely to be short term, and is not a company-specific issue. Beyond the disappointing slowdown in production last month, Nio said its factory is slowly ramping back up after COVID-19-related supply chain issues caused it to suspend production in April. And investors are likely putting more weight on some new catalysts that will drive the business versus the current challenges that should be overcome.
Nio delivered 693 of its new ET7 sedans in April. Image source: Nio.
Nio's April results marked only the second time in the last 18 months that vehicle deliveries have dropped on a month-over-month sequential basis. It also happened in October 2021 when the company took some delays to retool its production lines in preparation for new models and expanded capacity.
Last month, however, the delays weren't planned. They came as several areas in China are working to stem the spread of a new wave of COVID-19. Nio's production is being impacted as suppliers are struggling to keep the supply chain moving during several city lockdowns. But the company said it has begun ramping production back up.
And last month, Nio also reported the first full month for shipments of its new flagship luxury sedan. The company delivered nearly 700 ET7s, which is the company's first sedan model. It also has begin production trials for the follow-up ET5, a mid-size sedan. And Nio also plans a new SUV model before the end of 2022.
So while April didn't give investors very good news for what is valued as a growth company, there are plenty of catalysts coming beyond what should be a short-term hiccup. In addition to the new models, Nio is planning to grow its European footprint this year, after it began operations in Norway in 2021. Investors seem to be thinking the April delivery news shouldn't disrupt the overall growth story. But if production growth doesn't resume soon, that optimistic outlook likely will change.
