Nio Plunges After Q1 Earnings Report
This really should come as no surprise to anyone who has been following the markets this year. Earnings reports have been rinse and repeat: even if companies beat expectations, they are offering softer guidance for the rest of 2022. Why is this? Because nobody knows what’s going to happen with the global economy. Inflation is still running rampant and global supply chains still have not recovered from the coronavirus pandemic. For companies like Nio (NYSE:NIO), it’s obvious why the short-term seems bleak.
How bad was Nio’s quarter? It looks worse than it is when you consider the company had to shut down operations due to the Shanghai COVID-lockdowns. The stock fell by nearly 8% following the call as Nio saw a wider than expected loss coupled with decreasing gross margins on both a year over year and sequential quarterly basis. While the company anticipates production to return to normal, a less than bullish guidance meant this was the perfect recipe for a stock to sell off in this environment.
Nio’s Silver Lining
Nio did provide upbeat confidence that it is on track to deliver two more models by the end of the year. In fact, it confirmed that it is already in pre-production for its ET5 sedan model which is set to launch in September and compete directly with Tesla’s ($170.18|4.97%) Model 3. This is great news for the company considering most of its models are priced as luxury vehicles right now. It is also beginning production on its ES7 SUV model which should be ready for initial deliveries in August. CEO William Li confirmed that while production was down due to the lockdowns, order demand for Nio is at all-time highs.
On top of that, Nio remained steadfast on its expansion in Europe and recently announced that it would be establishing several more showrooms in Norway. With plans to enter Germany and a couple of other markets by the end of this year, Nio is showing it is committed to its 25 markets by 2025 plan.
Expect Short-term Headwinds for Nio
Even with all of these bullish catalysts, Nio remains a volatile stock to own. Short-term headwinds could certainly cap Nio’s upside, as lingering effects of COVID-19 are still directly impacting China and its domestic businesses. With the threat of another lockdown in Shanghai at any moment, Nio could potentially see more production closures in the coming months.
But over the long–term, the benefits outweigh the risks for Nio. Beijing showed that it is backing its domestic EV industry, by extending cash subsidies for consumers who buy domestically made EVs. On top of that, Nio is anticipating having a new facility for its mass-market sub-brand which is expected to launch in the next two years. With two new models on the horizon and global expansion still on the roadmap, Nio’s stock is positioned to rebound nicely when the global economy stabilizes and growth stocks resume their upward trajectory.
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