Nio’s stock surged on Q2 earnings

NIO Inc. (NYSE) shares have recently garnered attention from investors following the release of strong Q2 2024 results. The Chinese electric vehicle (EV) manufacturer reported steady growth in deliveries over recent months, with expectations of further increases in the upcoming quarter.

Nio has seen improved margins, currently at 12% per vehicle, with plans to reach 15% by the end of 2024. The company attributes this to higher production volumes, which are expected to drive greater economies of scale and help achieve its long-term margin goal of 25%.

Nio’s remarkable growth in Q2

In Q2, NIO (NYSE) demonstrated impressive growth, with revenue surging 99% year-over-year to 17.45 billion yuan ($2.4 billion). The company set a new record by delivering 57,373 electric vehicles during the quarter and forecasts deliveries of 61,000 to 63,000 vehicles in the third quarter. This strong performance underscores NIO's expanding market presence and increasing customer base.

On September 5, JPMorgan upgraded NIO's stock from Neutral to Overweight, raising the price target from $5.30 to $8. The upgrade reflects enhanced clarity around NIO's strategic plans and its notable progress in improving its cash position. JPMorgan expects the company's operating cash flow to turn positive in the second half of 2024, easing concerns about future capital needs or potential equity dilution.

Nio’s Q3 guidance also exceeded expectations, forecasting revenue between $2.63 billion and $2.71 billion, with deliveries projected at 61,000 to 63,000 vehicles. Given that Nio delivered 41,600 cars in July and August, this suggests over 20,000 deliveries are expected in September.

Looking ahead, Nio could see further growth in Q4 as it expands into the more affordable EV market. In May, Nio introduced its sub-brand Onvo, with the first model, the L60, launching later this month. While Nio’s main brand targets the premium segment with vehicles priced at RMB 300,000 ($42,000) and above, Onvo aims at the mass market, covering the RMB 200,000 ($28,000) to RMB 300,000 ($42,000) range. Nio is also planning to introduce another budget-friendly brand, Firefly, by the end of the year, with its first model expected to be a compact SUV.

Nio stock is surging

Nio shares are revving higher after the Chinese EV maker saw its second quarter revenue rise 98.9% year-over-year. While narrowing its expected losses per share, Nio posted revenue of $2.46 billion (converted from the Chinese yuan). Nio's electric vehicle deliveries soared to a record high, previously reporting declines in the month of August.

Nio's stock surged nearly 14% on Thursday, though it remains down about 42% year-to-date. By comparison, Xpeng is down 37% and Li Auto 45% over the same period. So, what factors influenced Nio's recent performance, and what could be next for the stock?

Nio has faced significant pricing pressure, with its average selling price dropping by around 10% year-over-year. This is due to intensifying competition in the electric vehicle (EV) market, where rivals like Tesla and Li Auto have slashed prices. Despite this, Nio’s vehicle gross profit margin improved to 12.2% in Q2, up from 9.2% in Q1 and 6.2% in Q2 2024. This improvement likely reflects increased economies of scale from higher deliveries and a stabilization in supply chain issues.

Despite Nio’s struggles over the past three years, with returns of -35% in 2021, -69% in 2022, and -7% in 2023, its current valuation appears appealing. The stock is trading around $5 per share, or about 1x consensus 2024 revenues. This is relatively low, given expectations for revenue growth of over 20% this year and more than 35% next year. While the uncertain macroeconomic environment could pose challenges, Nio’s potential for recovery remains promising, particularly as it seeks to capture a broader market with its new sub-brands.

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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.