Shares of Nio Limited (NIO) have been under pressure over the past six months, falling more than 25% compared to the 19% rise in the S&P 500 index. And since the stock peaked at $67, NIO shares have fallen as much as 53% to $31 per share amid the pullback in tech stocks. But is now a good time to buy?
NIO’s decline comes even though the Chinese electric vehicle maker, which is vying to become the next Tesla (TSLA), has posted quadruple-digit returns over the past year. What’s more, the company is no longer cash-strapped and has reported record deliveries in six consecutive months. But while there are no signs of slowing down, China’s increased regulatory environment becomes a risk to Nio’s massive growth rate. But is that fear justified?
That is one of many questions investors will want answered when Nio reports its second quarter fiscal 2021 earnings result after the closing bell Tuesday. Analysts have grown more cautious about the overall valuations in the electric vehicle sector, which could suffer if the China outlook worsens. For Nio, which sold 8,083 vehicles in June, marking an impressive growth of 116%, this still represent a small fraction of the 1.3 million electric vehicles sold in China in 2020. This means there is still market share to be had in China where EV sales continue to rise.
The Chinese government has embraced policies aimed to increase the adoption of EVs among its consumers. As part of its fifteen-year draft plan, which includes targets to reduce its huge dependency on oil, Beijing set an aggressive goal for for EVs to account for 25% of annual new light-vehicle sales by 2025. With China being the largest automotive market in the world, not owning a fast-growing EV company could be a mistake. On Tuesday NIO can allay concerns about regulatory risk by providing strong delivery guidance for the next quarter and full year.
For the three months that ended June, Wall Street expects Nio to report a per-share loss of 11 cents on revenue of $1.28 billion. This compares to the year-ago quarter when it reported a per-share loss of 18 cents on revenue of $550.47 million. For the full year, ending December, the loss is expected to narrow from $1.64 per share a year ago to 54 cents per share, up from -73 cents a year ago, while full-year revenue of $5.41 billion would rise 112% year over year.
The Tencent (TCEHY)-backed automaker continues to report record deliveries. After delivering almost 44,000 vehicles in 2020, marking an impressive year-over-year surge of 113%, Nio more than doubled vehicle deliveries in the second quarter, delivering 21,896 vehicles in the three months ended June 2021, increasing by 111.9% year-over-year. This total includes 8,083 vehicles delivered in June 2021, increasing by 116.1% year over year. That’s impressive growth given that the company endured some production delays from the global semiconductor shortage.
The chip shortage is part of the reason NIO trimmed its production guidance earlier this year, but forecasted that a rebound in the second half of the year. On Tuesday investors will want to know whether NIO stands by this guidance or if the chip supply shortage will persist, hurting NIO’s delivery growth in 2021. The company is seemingly changing its narrative with each quarterly report. And if Nio can maintain that strong gross margin trend on Tuesday, along with strong delivery guidance, the stock will move higher.
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