NIO stock has surged by 253 percent year-to-date and 271 percent after the release of its Q1 2020 results alone on May 28. The trend has continued with the release of its Q2 2020 results today. But is NIO still a good investment, or have you missed the boat?
NIO’s Q2 2020 results
The Chinese EV company’s EPS came in at -$0.15, an increase of 66.7 percent as compared to the same quarter a year back. It was also higher than the analysts’ estimate of -$0.26. Its revenues were also 5 percent higher as compared to consensus estimates. Another milestone achieved by the company during the quarter was the first positive cash flow from operations and also a first positive gross margin.
While commenting on the results, NIO CEO William Li said, “Beyond the strong order growth, we are proud to reach a milestone quarter with respect to the key financial metrics of the Company, highlighted with the historically high vehicle gross margin of 9.7 percent, lowest-ever operating losses and more importantly, positive cash flow from operations for the first time in our history.”
Positive gross margins for NIO
Investors were waiting for a positive gross margin from the company for a long time. With this, NIO has delivered on its promise of positive gross margins in Q2. The gross margins have also reached quite close to double-digit. Notably, NIO had guided for double-digit gross margins by the end of this year.
NIO’s upbeat guidance for Q3 deliveries
The good news for the company, however, doesn’t end here. The company guided for deliveries of between 11,000 and 11,500 for the third quarter. This implies an increase of more than 132 percent year-over-year. Notably, in Q2, NIO achieved record deliveries of 10,331. The expectations of a further increase over the record quarter showed robust demand and increased management confidence in the market and its own capabilities.
Among the highlights of NIO’s Q2 2020 financial results are:— NIO (@NIOGlobal) August 11, 2020
Quarterly Total Revenues: RMB3,718.9 million (US$526.4 million)
Quarterly Deliveries of ES8 and ES6: 10,331 vehicles
Quarterly Vehicle Margin: 9.7%
Quarterly Gross Margin: 8.4%https://t.co/BBMZZQwmV8 #BlueSkyComing pic.twitter.com/XnqD6XAGsv
NIO’s stock price reaction to Q2 earnings
The stock price reaction for NIO to this huge beat and upbeat guidance was, however, a little mixed. At the opening the stock climbed towards a record high, rising above the $15 mark. However, later the stock gave up those gains, and at 11:00 am EDT, the stock was trading with losses of 5.5 percent. But NIO longs should not worry about day-to-day stock swings. Even after a strong Q1 2020 report, NIO’s stock tanked, only to surge later on.
The fundamentals are in place for the company and it can reward investors in the long-term. However, NIO stock is only for investors who can stomach increased volatility. The initial catalyst was the company’s financing arrangement with the Hefei government. The arrangement took care of investors’ concerns about NIO’s liquidity. Then, things started falling into place for the EV-maker. The macroeconomic landscape has also been improving due to auto demand recovering in China. The country’s push towards EV vehicles has helped NIO. Due to the battery swap technology, NIO is eligible for EV subsidies.
So, if you’re investing for the medium to long term, there’s still huge potential in the stock. EV penetration in China is still very low. As China aims to increase the share of EVs in the overall auto market to 25 percent from 5 percent in 2019, NIO is one of the companies that can help the country reach this goal.
China’s push towards domestic firms
China prefers domestic companies over foreign ones. Although the Chinese government has supported Tesla (NASDAQ:TSLA), it will likely keep prioritizing local firms if the need arises. As a result, NIO has a huge advantage over many of the other companies. Also, NIO’s cars are very well-liked in China.
Investing in NIO stock for the long term
So, the bottom line is that a patient and long-term investor has a lot to gain from NIO stock. In fact, going by some measures, the stock’s journey might just be getting started. As the company gets closer to its profitability, its credibility will rise.