Investors have been waiting for Chinese EV maker Nio (NIO +2.71%) to begin to show the promise many had already priced into the stock. That's been especially true recently as the company has had to navigate challenge after challenge.
Nio needs production volume growth to accelerate. But headwinds this year have kept vehicle deliveries fairly steady, and losses continued to grow instead. With Nio just reporting a huge jump in November monthly deliveries on Thursday, investors might now think the company has finally turned the corner.
Looking for a breakout quarter
When Nio reported its third-quarter update last month, it showed signs that its investments to grow production capacity last year were starting to pay off. It delivered 31,607 electric sedans and SUVs in the third quarter after averaging just about 25,000 for the prior three quarterly periods.
But the real surprise was that management projected vehicle sales to soar to between 43,000 and 48,000 in the fourth quarter. At the midpoint that would represent a jump of 82% compared to last year, indicating rapidly accelerating growth. With the report that the company delivered a record 14,178 EVs last month, it looks like that acceleration is in fact occurring.
Data source: Nio. Chart by author.
Just in time for investors
It's been a tough year for Nio and other Chinese manufacturers. Restrictive COVID-19 policies have caused Nio's production to be suspended multiple times as well as impacting consumer demand. Several automakers including Tesla and Mercedes-Benz have lowered prices for their electric vehicles in China to help spur demand.
With new models being introduced and expanding sales outside of China into Europe, many investors thought 2022 could be the year that Nio reached profitability. Instead, in the midst of the turbulent environment, Nio's losses have mounted. Many investors have lost confidence, sending the stock spiraling down about 60% year-to-date.
NYSE: NIO
Key Data Points
Even with third-quarter revenue jumping by 32.6% year over year to $1.8 billion, Nio reported a net loss of about $580 million. That's up from $410 million in the second quarter and $280 million in the first quarter of 2022. But with fourth-quarter deliveries now on track to become the most by a large amount, investors might have reason to feel optimistic.
Smart sedans to the rescue
Nio expanded its lineup to include smart sedan models this year after solely making SUVs previously. Sales of its luxury ET7 have grown, but investors have been looking toward the lower priced, mid-size ET5 to have more mass appeal. The two models combined represented nearly half of November deliveries, even though the ET5 first shipped in late September. Sales of the ET5 nearly tripled in its first two full months of production.
Nio hopes to tap into more of the consumer market with the starting price for an ET5 the equivalent of about $46,000. At a Chinese auto show earlier this year, Nio co-founder and president Qin Lihong said he expects the ET5 to gain more sales than the gasoline-powered BMW 3 Series in China within just a year.
Image source: Nio.
Pivot point for the stock
Nio has now shipped more than 106,000 vehicles in 2022. Shareholders are hoping the November delivery report is a sign of things to come. The company also says it expects production and deliveries to accelerate further in December. To hit the lower end of its prior projections, the company will need to deliver nearly 19,000 units next month. That would be an increase of 32% from November's record.
If that is accomplished, Nio shares could see a resurgence. Investors seem to already have been showing more optimism prior to today's delivery report. Nio shares have rebounded almost 25% in the last month from 2022 lows. Further strong increases in shipments should drive even more of a recovery in the stock, too.
