Nio Stock Hits Accelerator With 14% Rise Post Q2 Results. Will the Momentum Continue?

Chinese luxury electric vehicle maker Nio stock (NYSE:NIO) published a narrower-than-expected loss for Q2. While sales almost doubled year-over-year to about $2.4 billion, net losses narrowed to $0.30 from $0.45 a year ago, led by strong delivery growth. Nio stock gained close to 14% in Thursday’s trading but remains down by roughly 42% year-to-date. In comparison, Xpeng (NYSE:XPEV) remains down 37% year-to-date, while Li Auto (NASDAQ:LI) remains down 45%. So what are some of the trends that drove Nio’s results, and what lies ahead for the stock?

Nio has been contending with considerable pricing pressure with average selling prices for its vehicle declining by about 10% compared to the previous year. This is due to mounting competition in the EV space, with key rivals including Tesla and Li Auto reducing prices on the vehicles. However, despite pricing pressure, Nio’s vehicle gross profit margin came in at about 12.2%, up from 9.2% in the first quarter and up from 6.2% in the second quarter of 2024. This was likely due to better scale from higher deliveries and easing supply chain issues, compared to the last year. Nio’s guidance for Q3 was also better than expected, with the company projecting revenue of between $2.63-2.71 billion on deliveries of 61,000-63,000 units. Considering that Nio delivered a total of 41,600 cars for July and August, the guidance implies that the company could see over 20,000 deliveries for September.

There’s a possibility that volumes could improve further in Q4 as Nio is looking to double down on the lower end of the EV market. The company introduced its sub-brand Onvo in May, with the first model – the L60 – set to officially launch later this month. While Nio’s flagship brand targets the premium market which is priced at RMB 300,000 ($42,000) and above, Onvo is aimed at the mass market – covering the range between RMB 200,000 ($28,000) and RMB 300,000 ($42,000). Nio is also planning to move further downmarket with another brand called Firefly, expected to debut by the end of this year. Firefly’s first model is anticipated to be a blend of a small SUV and a compact SUV.

Notably, NIO stock has performed worse than the broader market in each of the last 3 years Returns for the stock were -35% in 2021, -69% in 2022, and -7% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is less volatile. And it has outperformed the S&P 500 each year over the same period.

Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could NIO face a similar situation as it did in 2021, 2022, and 2023 and underperform the S&P over the next 12 months – or will it see a recovery?

Nio’s valuation is also attractive. The stock trades at about $5 per share, about 1x consensus 2024 revenues, which is not expensive considering that the company’s revenues are projected to grow by over 20% this year and by over 35% next year.  See our analysis of Nio, Xpeng & Li Auto: How Do Chinese EV Stocks Compare? for a detailed look at how Nio stock compares with its rivals Li and Xpeng.

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