Is the drop in Nio Stock today a buying opportunity?

child‘s (LITTLE BOY -6.12%) The first quarter earnings report came out this morning, and it sucks. It’s no surprise, then, that electric vehicle (EV) stocks are tumbling in gains today.

The company already announced a few weeks ago that it had delivered 25,768 EVs in the first quarter, so there are no surprises. Nio’s total revenue of $1.56 billion, up 24% year over year, also beat estimates. However, what the market may not have seen coming were lower margins, higher losses and a grim outlook.

However, some of the things Nio said reflect strong growth for the company. Does that mean today’s drop in Nio’s share price is an opportunity to buy?

3 areas where Nio disappointed

Nio’s margins in the first quarter were lower, both sequentially and year over year.

margin type Q1 2021 Q4 2021 Q1 2022
vehicle margin 21.2% 20.9% 18.1%
Gross margin 19.5% 17.2% 14.6%

Data source: Child.

To be fair, almost every electric vehicle manufacturer, including the industry leader Tesla, faces intense cost pressures: Prices for raw materials and metals like lithium and nickel, and key components like batteries, have soared in recent weeks. While most EV makers also increased vehicle prices to offset higher costs, Nio did not, blaming higher battery costs for the sequential decline in its vehicle margin.

However, the company had a different take on why its vehicle margin fell year over year: lower average selling price due to a change in its product mix.

I looked at Nio’s model numbers for Q1 2021 and Q1 2022, and the ES6, the company’s lowest-priced model, accounted for almost 52% of its Q1 shipments vs. 41% in Q1. first quarter of 2021. The company currently sells four models. : three SUVs (ES8, ES6 and EC6) and one sedan (ET7), deliveries of which began on March 28.

Four Nio electric vehicles in front of a Nio building.

Image source: Nio.

With Nio’s SG&A expenses, as well as research and development expenses also increasing year-over-year, its net loss soared nearly 300% year-over-year.

For the second quarter, the company expects deliveries to increase between 5% and 14%, from 23,000 to 25,000 vehicles, and expects to increase its revenue between 10.6% and 19.4% year over year. Both numbers indicate a slowdown in growth.

On a positive note, June should still be a much stronger month with their guidance implying deliveries of 12,902 vehicles at the higher end. In perspective, the company delivered only 7,024 vehicles in the month of May. That confirms what Nio said earlier this month: that it will ramp up production capacity and deliveries from June as China eases COVID-19 lockdown restrictions.

Nio is about to take a huge growth leap

The EV maker’s numbers may have disappointed the market, but the same can’t be said about its growth plans for 2022 and beyond.

Nio is on track to add two new electric vehicles to its portfolio:

  • ET5 Midsize Sedan: Deliveries are expected to begin in September.
  • ES7 mid-size to full-size SUV – Launching this month for deliveries expected to begin in August.

Nio further said that its gross margin should recover from the third quarter as deliveries are expected to rise rapidly in the second half of the year. Its second manufacturing plant is also on track to start production in the third quarter.

Importantly, the company is also working on a mass market brand and now hopes to start delivering a model for the masses in the second half of 2024. This model will be priced at around $30,000 to $45,000 per unit and will work with its internal batteries. , as reported by the new Chinese EV-focused website CnEVPost.

This, I believe, is the most important thing for investors in Nio’s earnings call today: an affordable EV for the masses and in-house battery packs. While the former could give Nio a breakthrough in China’s high-growth EV market, the latter should make it vertically integrated, self-reliant and less vulnerable to supply constraints.

Are Nio shares a buy now?

I’ll go straight to the answer: yes, Nio is a buy today, if you believe China’s EV growth story.

Nio is already a prominent player in China’s luxury electric car market. He sold more cars in April than the three biggest German brands set (BMW, Mercedes-Benz and Audi). With Nio now focused on a mass-market brand, it’s clear the company wants a bigger share of the world’s largest electric vehicle market.

Earnings swings are nothing new for growth stocks. What matters is whether revenues are growing or not. Nio leaves no room for complaint there: its deliveries hit a record high in May, its sales are rising steadily, and it makes positive gross margins. I think Nio is one of those growth stocks that could be a big winner in the next decade, and I would view any drop in share price as an opportunity to buy.

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