What happened

After watching Nio (NIO 6.07%) plunge 69% in 2022, investors had hoped the beaten-down electric vehicle (EV) stock would recover this year on the back of rising demand for EVs in China and Nio's product lineup. Unfortunately, that hasn't been the case yet -- Nio shares ended the first half of 2023 on a flat note even as the S&P 500 index gained 15.9%, according to data provided by S&P Global Market Intelligence.

However, there's something notable about Nio's performance: The stock could have ended the first half of 2023 deep in the red, had it not been for its dramatic rebound in June. Many believe Nio is now headed for a much stronger second half.

So what

Nio delivered a record number of vehicles, or 40,052 units, in the fourth quarter of 2022 despite China's struggles against the coronavirus and the consequential impact on the manufacturing sector. In the next quarter, though, Nio delivered only 31,041 EVs, and its deliveries dropped further to only 23,520 units in the second quarter of 2023.

Much worse than its volumes, though, were Nio's margins: Its gross margin plunged from 13.3% in Q3 2022 to 3.9% in Q4 2022 and further to 1.5% in the first quarter of this year. The steady drop in volumes and margins attracted a flurry of analyst downgrades and triggered panic among investors, sending Nio stock tumbling.

In between all this, Nio's rival, Tesla (TSLA 0.01%), slashed the prices of its EVs multiple times in early 2023, including that of its cheapest offering, Model 3. While Tesla achieved what it wanted -- it delivered a record number of vehicles in the second quarter -- the price cuts from the industry leader were a major setback for companies like Nio that are trying to establish themselves as competitive EV brands. Several EV makers were forced to join the price war to save their market share, but Nio refused to relent, adding to investors' frustration and concerns about management's growth strategy.

Now what

In mid-June, Nio finally gave in and announced price cuts ranging from 6% to 9% across its EVs. That was one of the biggest reasons why the stock shot 29% higher in June, especially since Nio's price cuts coincide with the rollout of its 2023 model-year cars built on its second-generation platform.

In fact, Nio was transitioning all its cars to the new platform and upgrading its manufacturing lines in recent months, which is primarily why its production and deliveries fell in recent quarters.

That also means Nio may have never had a demand problem, as many believed, and the worst could indeed be over. With the company now launching upgraded models in China as well as Europe and planning to ramp up production in the coming months, its deliveries and revenue should also start to rise. 

Nio's better days are perhaps already here: Its deliveries jumped 74% sequentially in June, crossing the 10,000 mark again, and management expects monthly deliveries to hit 20,000 as the year progresses.