Chinese electric vehicle (EV) maker Nio (NIO 2.45%) struggled last year as it fought supply chain and COVID 19 issues in its home country. Investors punished the stock as vehicle production lagged and profitability looked further and further away.
The stock is almost 28% lower than it was a year ago as a result. But those returns would be much worse had it not been for a recent surge in Nio shares. The stock has nearly doubled since early May, making it a good time for investors to look into whether it's time to buy, sell, or just hold Nio shares.
Year of expansion
2023 was supposed to be the year of expansion for Nio. The company completed construction of its new production facility in Hefei, China, just over one year ago and now has the capacity to produce more than 1 million EVs annually. That project was in anticipation of Nio growing sales in Europe as well as its home Chinese market.
Nio entered the European market in 2021 starting in Norway. By the end of last year, the company had planned to enter Germany, the Netherlands, Sweden, and Denmark. But its production growth stalled in 2022. Supply chain disruptions and COVID 19 shutdowns hampered production growth. But the company may finally have those headwinds behind it.
Turning the corner
After several consecutive months of declining vehicle deliveries, Nio just announced that it delivered a record number of EVs in July. That marks the second straight month of increasing vehicle sales. July was the first month that Nio delivered more than 20,000 vehicles.
Data source: Nio. Chart by author.
It was also notable that about half of the 20,462 vehicles shipped were the company's newest offering. The ES6 is Nio's newest smart SUV that utilizes its latest technology and is marketed as a vehicle for comfort, sport, family, and adventure use. The ES6 is the first model Nio has ever sold more than 10,000 units of in a single month.
For perspective, July deliveries represented increases of more than 103% year over year and 91% month over month from June.
Beyond the car
Nio also continues to expand its tangential businesses to selling EVs. Its power segment offers traditional charging as well as mobile charging and battery swap stations. Battery exchange is a subscription service that allows customers to effectively buy EVs without paying for the batteries, to save upfront costs. The stations install fully charged batteries in about three minutes, making it faster than recharging drained batteries.
As of March 2023, Nio had more than 1,300 power swap stations, including nearly a dozen in Europe. Of course, this growth comes at a cost. While revenue totaled more than $1.5 billion in the first quarter, Nio still reported a net loss of nearly $700 million.
Investors need to realize that there still may be a long road to profitability. But if vehicle production continues to grow as it has in the past two months, that road might have an end in sight. For those wanting to speculate on its long-term success, allocating a modest amount to an investment in Nio now could pay off. The business results over the coming months will determine whether that looks to be a good decision.
