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NIO Stock Rises Due to Deliveries and Upgrade: Don’t Celebrate Yet


May. 7 2020, Published 12:55 p.m. ET

NIO (NYSE:NIO) reported its April delivery numbers on May 6. The company delivered 3,155 vehicles in April—growth of 106% month-over-month and 181% year-over-year. NIO stock also got an upgrade from Bank of America from “neutral” to “buy.” Bank of America analyst Ming-Hsun Lee thinks that the stock is less risky after the recent cash infusion. The stock gained 10.4% on May 6 due to a robust deliveries report and upgrade.

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NIO’s April deliveries

NIO’s founder and CEO, William Li, said, “These results were mainly contributed by the recovering production and delivery capabilities.” He also mentioned that the company has witnessed “strong order growth momentum” due to its competitive products and exceptional services.

Rebound in China’s auto sales

The sharp rebound in car sales is likely due to reopening the Chinese economy after the COVID-19 lockdown ended. According to Reuters, automobile sales in the world’s biggest EV (electric vehicle) market have been recovering. Based on figures from the China Passenger Car Association, the auto retail sales in the first 25 days of April narrowed to just a decline of 1.6%. Volkswagen also reported that the demand in China was rebounding.

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NIO stock faces competition from Tesla

Tesla (NASDAQ:TSLA) competes with other EV-makers in China. Since Tesla started commercial operations at its Shanghai Gigafactory in 2019, its costs for delivering the Model 3 in China have been declining. As a result, the company can compete more aggressively. In March, Tesla delivered 10,160 vehicles in China, which was a record high. The number represented 25% of China’s EV sales during the month. The figure becomes even more interesting since China’s passenger car sales declined by 40%.

Tesla’s Model 3 price cut to pocket EV subsidies

On April 30, Tesla announced a 10% cut in Model 3 prices in China. The Model 3 will be eligible for Chinese EV subsidies. The company will pass on the cost benefits to the final consumers. Due to Tesla’s cost efficiencies and strong brand name, it will become a formidable challenger to Chinese domestic EV-makers. NIO stock has been impacted by increasing competition.

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NIO’s cash burn

Apart from tough competition, NIO is also going through a tough phase. The company has been burning more cash than it can generate through its operations. The company has raised money through convertible notes. Recently, the company entered into a definitive agreement to raise 7 billion yuan (about $1 billion) from Strategic Investors.

Outlook for NIO stock

However, if the company’s losses continue to mount, the cash won’t last long. Therefore, NIO needs to become profitable sooner rather than later. So, while NIO’s stock price rallied on a positive delivery report, more work is needs for the stock to gain sustainably in the future. Notably, the stock has lost 18% in 2020. In contrast, Tesla stock has gained 84% during the same period. Read Looking Ahead: Is the Worst Really Over for NIO Stock? to learn more.


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