It's been a wild month for shares of Chinese electric vehicle (EV) stock Nio (NIO +0.25%). Shares bounced 20% higher, then 10% lower, then 30% higher, and now 7% lower again.
NYSE: NIO
Key Data Points
In spite of these wild swings, the stock is definitely on an uptrend. Shares have more than doubled from their April lows. With the stock's recent drop to just above $7 a share, is now a good time to buy?
Nio news is good news
The wild swings in Nio's stock price aren't random. They've come on the heels of important news from the company.
On Aug. 21, Nio announced that the all-new version of its ES8 electric SUV would have a starting price of roughly $50,000 -- a 25% price cut from the previous model -- and for users who take advantage of its battery-as-a-dervice (BaaS) program -- which allows users to swap out their depleted battery pack for a full one instead of waiting for a charge -- the starting vehicle price would drop to about $43,000. This announcement came on the heels of Nio's rollout of its Onvo brand L90 SUV, which had an even lower starting price of about $37,000 with battery or $25,000 with BaaS.
Given the high demand for electric SUVs -- particularly six- and seven-seat SUVs like the ES8 and L90 -- and the high cost of existing models, Nio's lower-price options are expected to sell well, and the market bid up shares. Those shares went even higher after Nio reported 31,305 vehicle deliveries in August, an all-time monthly record that included more than 10,000 sales of the new Onvo L90.
But it's not all good news
The stock's rapid rise was suddenly halted when Nio announced it would issue additional stock priced at $5.57 a share in an attempt to raise $1 billion in additional equity.
Because these new shares would dilute the value of existing shares, the stock price fell by about 10%. Nio had about $3.8 billion on its balance sheet prior to the new offering, which raised $1.16 billion. That means the company now has a $5 billion cash cushion while it continues to work toward profitability.
Last week, J.P. Morgan analyst Nick Lai restated his buy rating on Nio stock, with a new price target of $8 a share, explaining that despite the share dilution, the extra capital was important to help the company succeed in the extremely competitive Chinese EV market. Shares popped higher again after the rating was announced.
So, is Nio a buy at its current price, which is higher than the pricing of the recently issued shares, but lower than Lai's target?
Image source: Getty Images.
There's a mixed bag of signals about Nio
There are a lot of factors pulling Nio's stock price in different directions. Its business is in the same boat.
Nio operates primarily in the Chinese market, where EVs are in higher demand than in the U.S. market. Plus, as a Chinese company, it's likely to benefit from government policies that have historically disadvantaged foreign brands, including Tesla. However, part of the buy thesis for Nio includes its expansion into European markets, where those advantages will be minimized.
Meanwhile, Nio has clearly decided to increase its sales volume by offering its vehicles at rock-bottom prices. Deliveries are indeed increasing, but the company's average revenue per unit is taking a corresponding hit. However, Nio's popular BaaS program brings in an additional stream of recurring revenue that's fairly unique among automakers and may partially make up for the lower sales revenue over the long term.
Like many young, high-growth companies, Nio is still unprofitable and cash-flow-negative. But its revenue has been steadily increasing, and its quarterly losses have shrunk in each of the last two quarters. It's expected to continue to deliver about 30,000 vehicles per month in Q3, and for revenue to continue to climb by double-digit percentages year over year.
None of this is a guarantee of success. Indeed, if you bought Nio shares between July 2020 and January 2024, you've lost money on your investment. The stock is still risky today, but its fundamentals are improving, and its ability to compete on price -- which is where the market for EVs seems to be these days -- makes it a worthwhile bet for risk-tolerant investors looking for an EV growth stock at a reasonable valuation.
