Shares of Nio Inc. (NYSE: NIO) have jumped over 440% in the past 12 months and 24% over the past one month. The Chinese electric vehicle maker is in the spotlight after reporting strong delivery numbers for the second quarter of 2021. Although there is a bullish sentiment around the stock, Nio has its fair share of challenges. Here are a few reasons why Nio is worth keeping an eye on:
Tailwinds
Nio has an impressive string of deliveries. The company delivered 7,102 vehicles in April, which was up 125% from the same month a year ago. Deliveries in May rose 95% YoY to 6,711 units. This was followed by 8,083 vehicles in June, up 116% YoY. For the second quarter of 2021, Nio delivered 21,896 vehicles, reflecting a YoY growth of around 112%. The company had guided for Q2 deliveries to come between 21,000 and 22,000 vehicles.
Nio has meaningful growth potential with its Battery-as-a-Service (BaaS) model and the expansion of its charging and swapping network. On its Q1 2021 earnings call, Nio said its 100-kilowatt-hour battery pack had a higher-than-expected take rate. As of April, the company had over 10,000 users for this battery pack.
Last quarter, Nio rolled out its second-generation Power Swap Station which can handle up to 312 swaps per day and carry up to 13 battery packs, thereby significantly increasing its service capacity. The company has 206 swap stations in 77 cities and it aims to increase this number to at least 500 by the end of 2021. Nio currently has 146 Power Charger stations and 1,826 destination chargers and the company plans to increase these numbers to 600 and 15,000 by year-end.
Nio also has significant market opportunity. According to a report by Canalys, electric vehicle sales in China are estimated to grow by more than 50% in 2021. In 2020, 1.3 million EVs were sold in China. The report states that 1.9 million EVs will be sold in China in 2021, reflecting a growth of 51%.
Headwinds
Nio’s continued losses are a cause of concern. In the first quarter of 2021, net loss attributable to ordinary shareholders increased 183% YoY to $744.1 million on a reported basis. Reported loss per ADS amounted to $0.48 while adjusted loss per ADS was $0.04.
The company is also likely to feel the impacts of the ongoing semiconductor supply shortage which had impacted its production and delivery last quarter.
Nio faces tough competition in the EV space from both local players in China as well as from larger rival Tesla (NASDAQ: TSLA). With demand for EVs picking up and the number of players in the field increasing, Nio has to up its game to keep up.
According to TipRanks, Nio holds a Strong Buy rating and the average price target is $63.63, which represents a 24% upside from the current level.