NIO (NYSE: NIO) stock is up 440% in the past year. It has even outperformed Tesla, whose share price rose 180% during the same period. Last week alone, the NIO share price rose 10%.
Here, I would like to analyse the company’s financials and understand why the share price is rising.
NIO’s fundamentals
NIO recently released its monthly delivery update. It delivered 8,083 vehicles in June 2021, up 116% from June 2020. The deliveries recovered from a temporary slowdown in May caused by a shortage of chips that impacted the entire automobile industry. For the second quarter of 2021, NIO delivered 21,896 vehicles, representing growth of 112% over 2020. It matched the company’s guidance of 21,000–22,000 vehicles in this quarter.
The company’s revenues in the first quarter rose about 482% to $1.2bn. This was primarily due to the higher deliveries achieved from more product mix and expansion of the sales network. The addition in the product mix was EC6, Smart Electric Coupe SUV. The Covid-19 pandemic intensified at the beginning of 2020, which also reduced sales last year.
NIO’s vehicle margin was 21.2% compared to -7.4% in the same period last year. It was driven by the increase in vehicle delivery volume, higher average selling price, and lower material cost. This helped the overall gross margin to reach 19.5% compared to -12.2% in the first quarter of 2020. The company’s cash flows are improving. It continued to achieve positive cash flow in the first quarter of 2021.
Why is NIO stock rising?
I believe the strong growth in the financial results in the past year is one of the reasons for NIO stock’s strong rally. Also, electric vehicle stocks are in favour and NIO has benefitted from this trend. Last week, a Citigroup analyst upgraded the stock from neutral to buy. They have a price target of $72, which suggests an upside of around 50% from the current price. However, actual performance might differ from analysts’ estimates.
NIO’s battery swapping technology is also a major differentiator in the electric car market. It can offer a battery-as-a-solution (BAAS) solution, which reduces the upfront cost of purchasing NIO vehicles. Another advantage of this technology is quickly swapping the depleted batteries in specially-equipped service stations.
Risks
The company is yet to be profitable. There is stiff competition in the electric car market. Also, a huge investment is required to build factories. If the losses continue for a prolonged period, it might hurt the NIO share price.
NIO stock has performed very well in the past year. However, if the growth rate does not meet the market expectation, then there could be profit-booking.
Taking all things into consideration, I think electric vehicle stocks will be in high demand. Earlier this year, I purchased shares in Scottish Mortgage Investment Trust for its exposure to electric cars and technology stocks. Though the fund has slashed its holdings in Tesla, it continues to hold 4.0% in Tesla and 3.2% in NIO. I will continue to hold my shares.
