Chinese electric vehicle (EV) maker NIO Inc (NYSE: NIO) (SEHK: 9866) (SGX: NIO), managed to eke out a small gain in its delivery numbers for September – which were reported at the beginning of this month.
NIO delivered 10,878 EVs in September, which represents 2% month-on-month (MoM) growth. However, it was a moderation from the hypergrowth seen in FY2020 and FY2021.
Aside from that, like many of the growth and technology companies, the rising interest rate environment, and other macro headwinds, have also led its share price to fall by 64.8% compared to a year ago.
In this challenging environment, I believe there are three reasons investors should buy NIO but there are also two key risks to watch out for.
1. Record Q3 deliveries despite ongoing challenges
NIO’s deliveries throughout Q3 have been impressive. Although the deliveries missed the midpoint of guidance of 31,000 to 33,000, the deliveries of 31,607 vehicles set a new record high for the quarter.
It represents growth of around 29.3% from a year ago. What is even more impressive is the consistency that NIO has managed to achieve in comparison to its peers.
Throughout July, August and September, NIO recorded deliveries exceeding 10,000 units while XPeng Inc (NYSE: XPEV) (SEHK: 9868) and Li Auto Inc (NASDAQ: LI) (SEHK: 2015) saw a fluctuation in their deliveries.
Source: Companies’ websites, ProsperUs
2. NIO’s new launch of ET5 will keep growth momentum
NIO is expecting production and deliveries to surge in Q4 after the EV maker launched its new model; ET5.
September was the start of the deliveries for its newest sedan product and the company will ramp up production in the coming months.
In September, delivery volume was relatively small but investors can expect to see a significant increase in deliveries.
CEO William Li believes that NIO is going to break records every month in the last quarter of this year as the company has “been making active preparations to meet this target.”
Demand has been strong for its new model and management has highlighted that supply chain constraints were the main concern for the EV maker as opposed to demand.
3. NIO expansion into Europe
NIO recently unveiled more details on its products and services expansion in Europe.
The EV maker will offer leases on its ET7, EL7 and ET5 models through a subscription model designed to encourage the shift towards EVs.
The subscription models NIO offers include comprehensive insurance, maintenance, winter tires, a courtesy car and battery swapping, as well as the flexibility to upgrade battery services.
In terms of its established infrastructure in Europe, NIO has access to 380k charging points with NIO NFC cards and a European version of NIO’s charging map will also be introduced.
The company plans to build 20 Power Swap Stations (PSS) in Europe by this year and aims to build 1,000 PSS outside of China by 2025. Most of these PSS will be in Europe.
Is it time to buy NIO now?
While the long-term growth prospects for NIO remains strong, the near-term headwinds and market challenges cannot be ignored.
The growing friction between the US and China is one of the biggest risks for NIO.
Tougher trade restrictions on the chip industry could worsen the supply chain constraints for the EV maker.
Meanwhile, the ongoing threats to delist US-listed Chinese stocks could also hurt its share price further. NIO is also deeply in the red despite its growth prospects.
On a positive note, the gross margin for NIO has improved to 18.9% in 2021 as compared to -5.2% in 2018.
The EV maker is also sitting on US$8.1 billion in cash, cash equivalents and restricted cash at the end of June 2022, providing it with the buffer for the US$410 million net loss in the first half of the year.
NIO’s valuation has also come down significantly and is currently trading at 3 times its sales.
Having said all this, it might not be the right time to buy into NIO as valuations could remain depressed given the current macroeconomic environment and geopolitical headwinds.
Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.
