Investing is a long-term game. No one really knows what is about to happen to any given stock. But after a year-long slump, Nio (NIO 8.72%) shares could be ready to turn the corner.
Shares of the Chinese electric vehicle (EV) company already had one attempt at recovery over the summer, but speed bumps in the company's business progress cut that rally short. A look at recent production data and a strong demand environment could signal that it's time for a new rally in Nio stock.
Meaningful shift in productivity
One major reason why Nio's share price was cut in half over the past year is its fundamental lack of progress in growing its production and vehicle deliveries to customers. In the first half of 2023, deliveries only nudged about 7% higher compared to the first half of 2022. That's not nearly the level of growth investors expect from the company.
There were several problems that stifled the company's growth over the last 12 months. They included COVID-19-related delays, a slowdown in the Chinese economy, and increasing competition. But things have changed in the third quarter. July and August were the biggest two months on record for Nio deliveries. Looking at shipments on a trailing-12-month basis shows the impact of those two record months.
Data source: Nio. Chart by author.
Last week Nio announced that it was following through on previously announced plans to introduce its own smartphone, too. Nio's new Android-based smartphone is an attempt to expand its ecosystem of EV owners. The phone pairs with Nio EVs and is similar to how Apple's AirPlay and CarPlay are used by drivers. If it catches on with Chinese EV buyers, Nio could have a competitive advantage to grow its vehicle business.
It's not all clear sailing yet
Nio will need to expand any competitive advantage it can garner, too. And it's not just EV competitors it may have to deal with. Earlier this month the European Commission announced it was initiating a probe into Chinese EV subsidies. In announcing the investigation, the commission's president said: "Global markets are now flooded with cheaper electric cars. And their price is kept artificially low by huge state subsidies."
Any new tariffs imposed in the future would be a big blow to Nio and its expansion plans. Nio began exporting EVs to Europe in 2021 and continues to expand its reach there. The German market is one Nio has entered, and that country's transport minister has already expressed his opposition to any punitive tariffs. Investors will have to monitor that situation carefully as it could have a major impact on the company's growth.
Nio's recent uptick in deliveries is a good sign for the company and its investors. The stock, however, likely won't begin any sustainable move higher until that level of production growth becomes a meaningful trend. That's what investors will need to be watching in the coming months.
