Shares of Chinese electric vehicle manufacturer Nio (NIO 1.52%) got a much-needed breather in May after a dismal start to 2024, but the recovery has only lasted so long. The electric vehicle (EV) stock has already shed most of May's gains in the first week of June, dropping 12.1% at its lowest point in trading this week through 10 a.m. ET Friday, according to data provided by S&P Global Market Intelligence.
Nio's quarterly numbers disappointed investors, but the EV maker's monthly deliveries are finally picking up pace as expected. Is Nio stock's drop this week an opportunity to buy?
Nio's earnings disappointed, but the worst could be over
Let's first check the key numbers from Nio's first quarter:
- Vehicle deliveries: 30,053 units, down 3.2% year over year and 39.9% sequentially.
- Vehicle sales: $1.2 billion, down 9.1% year over year and 45.7% sequentially.
- Vehicle margin: 9.2% versus 5.1% in Q1 2023 and 11.9% in Q4 2023.
- Gross margin: 4.9% versus 1.5% in the year-ago quarter and 7.5% in Q4 2023.
- Net loss: $7.2 billion, up 9.4% year over year but down 3.4% sequentially.
The headlines may tell you otherwise, but the biggest takeaway from Nio's numbers is the improvement in its margins.
NYSE: NIO
Key Data Points
Remember, Nio's deliveries and margins started to drop in the latter months of 2023 after the company slowed down production as it started transitioning all its models to a second-generation platform. Management, however, was confident that Nio's deliveries and margins would rebound from the second quarter, and that's precisely what appears to be happening now.
Nio's deliveries in April and May surged 134.6% and 233.8% respectively, both year over year. That means Nio's deliveries in the second quarter could rise at least 130% year over year. That's a dramatic improvement over the first quarter, and it should reflect in Nio's margins as well.
Why Nio stock is a buy now
It may not be a straight-line recovery for Nio, but the EV maker's deliveries and margins are back on track. Management, in fact, expects Nio's revenue to jump at least 89% year over year and vehicle margin to return to double-digit percentages in the second quarter, backed by new launches.
Nio launched and started deliveries of its new 2024 ET7 executive sedan in April. In May, it launched a mass-market brand called Onvo and started taking preorders for its first EV under the brand, L60. L60 is a midsize SUV, with deliveries expected to start in September this year. Meanwhile, Nio is already preparing to launch a third brand, Firefly, and start deliveries in China in the first half of 2025.
With Nio now shifting focus to volumes and high-margin products, the stock could find just the right catalysts to bottom out and recover, making it a compelling buy after this week's drop. Nio stock is trading down a whopping 46% this year, as of the time of this writing.
