My last Nio stock price forecast was accurate: now what?
Nio (NIO) stock price has staged a strong comeback this month even as other Chinese electric vehicle companies like Li Auto, Xpeng, and Polestar remains under pressure. It jumped to a high of $5.5 on Monday, its highest point since May 15. It has soared by over 53% from its lowest point this year, making it one of the best-performing EV companies.
Nio financial results
Nio, a leading Chinese electric vehicle company, published strong financial results, which showed that its business was doing well. Its vehicle deliveries jumped to over 57,000 in the second quarter, a big increase from the 23,520 it sold in the same period in 2023.
The deliveries were almost double what it delivered in the first quarter, and is a sign that the EV industry is doing well. This is unlike what most analysts have been predicting.
Nio’s vehicle sales rose by 118% to over $2.1 billion and a 87% jump from the last quarter. Most importantly, unlike the recent expectations, Nio continued to grow its vehicle margins, which rose to 12.2% from 6.2% in Q2’23 and 9.2% in the first quarter.
As a result, Nio’s gross pofit rose to $232 million while its net loss slowed to $716 million. Excluding share-based compensation, Nio’s loss came in at $624 million.
Most importantly, Nio hopes to continue growing, especially with the upcoming launch of its ONVO brand. ONVO’s L60 is a relatively low-cost brand that has already attracted thousands of pre-orders.
Nio hopes to deliver between 61,000 and 63,000 in the third quarter, a 10% to 13% increase from the same period in 2023. It also expects that its revenue will be between $2.6 billion and $2.7 billion.
Cheap valuation as profitability nears
One reason why Nio stock price has crashed hard in the past few years is that it has been a big incinerator that has made substantial losses. Its net loss has increased to over $9.2 billion in the last five financial years. These losses happened even as Nio’s revenue totalled over $24.2 billion in the same period.
Nio’s loss-making has been because of its big investments to increase manufacturing capacity. It has also spent a fortune in research and development (R&D) and selling, general, and administration.
Nio is not the only EV company that has come under pressure in the past few years. Rivian, the giant American company known for its SUVs and pickup trucks, has lost billions of dollars and was recently saved by Volkswagen, which invested $5 billion.
Similarly, Lucid Group has also become a big cash incinerator. Like Rivian, it also remains in business because of the large investments by the Saudi Arabia’s government.
Tesla, the gold-standard in the EV industry, also recorded substantial losses before it turned a profit. It is estimated that it lost over $6 billion between 2003 and 2020.
Fortunately, there are signs that Nio is working towards profitability in the next few years. Nio’s loss per share stood at $1.53 in 2023 and analysts expect it to narrow its loss to $1.23 this year and $0.92 in the following year.
On the positive side, Nio has the balance sheet it needs to become a highly profitable brand. It ended the last quarter with over $5.7 billion in cash and short-term investments. Its short-term borrowings stands at $729 million, which it can pay comfortably without dilutions.
Risks remain
Still, Nio, like other companies in the EV industry, is facing substantial risks ahead. The first risk is that the EV industry is slowing globally, especially in China, its primary market. It is also getting highly competitive, with companies like Xpeng and BYD vying to take market share.
Second, there are signs that consumer spending is slowing in China. This explains why many companies like LVMH, Estee Lauder, and Burberry that do a lot of business there are struggling.
Third, Nio’s global expansion approach is finding some major challenges. Like most EV companies, Europe, an economy that is slowing is a big priority. The challenge is that many Europeans are now focusing on hybrid vehicles.
Nio stock price analysis
NIO chart by TradingView
Nio’s stock surge is in line with my last prediction, when I forecasted that its comeback would be epic. It formed a double-bottom chart pattern at $3.65 and is now approaching the neckline at $6.
The stock is also nearing the 38.2% Fibonacci Retracement point. It has also found a strong resistance point at the 200-day moving average. Also, the Relative Strength Index (RSI) has jumped to the overbought level. It has formed a small bullish flag chart pattern.
Therefore, the path of the least resistance for the Nio share price is bullish, with the next point to watch being at $6. A break above that level will point to more gains.
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