Nio Is the Same Great Investment Opportunity It Always Was thumbnail

Nio Is the Same Great Investment Opportunity It Always Was

Posted on

In my estimation, investing in Nio (NYSE:NIO) stock remains an excellent opportunity. I don’t say that only because it has risen by 20% in price over the past two weeks. In fact, I’m not very enthusiastic that share prices will continue to rise in the immediate future. Nio has proven volatile over the year. It’s an EV maker and a Chinese firm, so it has every chance to remain volatile. 

A Nio (NIO) sign and logo on a tan concrete building.

Source: Sundry Photography / Shutterstock.com

But the longer-term picture is clear. Nio has a bright future ahead. And while valuation concerns persist, they’re overblown. EV stocks are not fossil fuel vehicles stocks and they will never trade similarly. 

The reasons that investors should consider Nio remain the same: growth and position. 

Losses are Paramount

Naysayers often find fault in Nio for any number of reasons. It’s a young company which most recently recorded $1.225 billion in quarterly revenues, reaching $243.8 million in profits. Those are phenomenal numbers for such a young company. However, Nio still managed to record a net loss of $90.9 million in Q2 on those strong sales numbers. 

If we compare those net losses to Tesla’s (NASDAQ:TSLA), Nio doesn’t look bad. From 2015 to 2019 Tesla recorded annual net losses exceeding $500 million in each year. In 2017, those losses approached $2 billion. And those losses only became net gains in 2020. 

That should ease the worries of Nio stock investors. If we assume Nio will follow Tesla’s footsteps, then a turning point where losses become gains is clearly ahead. 

In my mind, losses are one of the most important numbers to consider when looking at Nio. Operational efficiency can’t happen overnight. But any positive investor has to imagine that net gains are an inevitability for the firm. 

Nio is going to continue to increase its delivery numbers while finding new efficiencies. A turning point will occur sometime soon. A recent article suggests that point will occur in 2023

For now, investors should be satisfied with Nio’s delivery numbers in the face of a global semiconductor shortage and disrupted supply chains. 

Deliveries Equally Paramount

In Q2, Nio delivered 21,896 vehicles. Depending on one’s perspective, that was disappointing. On a year-over-year basis it was a very strong number. Those deliveries represented a 112% delivery increase from 10,331 in Q2 ‘20. 

However, on a sequential basis, there was reason for some concern. Nio delivered 20,060 vehicles in Q1. And 9.15% delivery growth simply isn’t enough for Nio at this point. That truth factored into NIO stock sliding 15% immediately following Q2 earnings. 

So it is no surprise that Nio wants the public to understand that it expects to increase those deliveries. A recent press release shows as much:

With the concerted efforts of NIO teams and supply chain partners, NIO delivered 10,628 vehicles globally in September 2021, an all-time high monthly record representing a robust growth of 125.7% year-over-year.”

We can assume that Nio would have delivered far more vehicles in Q2 were supply chain issues normal. However, they weren’t. Nio noted that concerted efforts with its supply chain partners have resulted in that record September delivery figure. In other words, it pressed hard despite the issues so that deliveries would rise.  

The company also noted that it delivered 24,439 vehicles in the three months ended September. That indicates growth more in line with what investors expect and that the firm is solving supply chain issues. 

What to Do

I remain a fan of Nio despite its macro environment—which includes severe headwinds. Being a Chinese firm makes Nio riskier given China’s efforts to control its economy. The semiconductor supply chain is notably difficult as well. 

But Nio will post another record quarter in Q3. And the future is certain for Nio as a global EV competitor.

On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.