- Tesla and NIO stocks have risen sharply this year. On Wednesday, Tesla reported a net profit in the second quarter, which makes it eligible for inclusion in the S&P 500.
- In a leaked email last month, Elon Musk talked about breaking even. The company delivered on the vision and turned a profit in a challenging quarter. Now, NIO needs to deliver on its goal of a positive automotive gross margin in the second quarter.
Tesla posts a net profit
Tesla (NASDAQ:TSLA) reported its second-quarter earnings on Wednesday and posted a net profit. In a leaked email last month, CEO Elon Musk said that “breaking even is looking super tight.” The company didn’t manage to break even but churned out a net profit for the fourth consecutive quarter. Tesla is eligible for inclusion in the S&P 500 (NYSEARCA:SPY). Tesla and NIO stocks have been on a fire this year. They have risen 280% and 208%, respectively, year-to-date. While Tesla has delivered on Musk’s vision, NIO (NYSE:NIO) needs to deliver on its stated goal of a positive automotive gross margin in the second quarter.
NIO’s Q2 gross margins
So far, NIO has been posting negative gross margins. Last year, the company took several measures including cutting down on its headcount to improve its finances. The company expects to post a positive vehicle gross margin in the second quarter. The gross margin could rise to double digits by the end of this year. The sharp rally in the stock reflects markets’ optimism in the company’s ability to deliver on its commitments. NIO posted healthy deliveries in June, which added to the stock’s rally.
Can NIO stock recover?
However, after rallying sharply, NIO stock fell from its peaks. Based on Wednesday’s closing prices, the stock is down 25% from its July highs. Tesla stock has also fallen from its 52-week highs. However, Tesla and NIO were trading higher in after-market trade on Wednesday. Tesla’s second-quarter earnings beat market sentiments.
Previously, I noted that I expect some buying support for NIO stock after the steep fall. The stock has recovered from those levels. I expect the stock to rise more from these levels. However, the company needs to deliver on its commitments and show an improvement in its financial performance just like Tesla has done.