Nio (NYSE: NIO) is a Chinese electric vehicle (EV) company and has been producing five, six, and seven-seater electric SUVs and electric sedans. While its recent earnings numbers for Q1 of 2022 got mixed reactions, the sector as a whole is primed to do well.
Increasing levels of global warming have been the primary driving force behind the rising adoption of EVs. High oil prices and rising inflation levels have also played their part in recent months.
Like many other EV companies, Nio stock was also trading in the exchanges at an inflated valuation driving share prices lower in the last year. Nio is considered a challenger to Tesla (NASDAQ: TSLA), but it is currently trading 70% below all-time highs valuing the company at a market cap of $34 billion.
China’s zero-COVID policy led to the closure of many factories. But recently, the Chinese government intends to ease these restrictions to revive its economy. China is offering several incentives for electric vehicle buyers.
The government provides around $1,500 to help people switch to electric vehicles. Moreover, in 2020 governments across the world had already spent $14 billion as incentives for purchasing EVs, representing a 25% year-on-year growth.
Nio holds a significant position in the Chinese EV industry and is in a prime position to improve market share going forward.
So, is the Nio stock worth buying now?
A look at Nio’s Q1 results
Earlier this month, Nio reported its quarterly results for Q1 of 2022, which received mixed reactions from investors. The market was impressed by the company’s improving production capabilities. Nio delivered 25,768 vehicles in Q1, a quarterly record. It has now delivered 200,000 vehicles to date since it kickstarted production in 2018.
Quarterly revenue came in at $1.56 billion, up 24.2% year-over-year. The gross margin, however, decreased to 14.6% compared to 19.5% recorded a year ago. Besides, there was a massive 295% increase in its net loss, which stood at $281.2 million. The increase in selling, general, and administrative expenses and the research expenses were the factors that had led to such an increase in the losses.
An innovative approach is key to NIO stock
Innovation is the key to success, and Nio’s innovation makes it one of a kind. For example, the company’s recently introduced flagship electric sedans have a range of 621 miles on a single charge. In addition, Nio’s battery-as-a-service subscription product offers buyers a discount on vehicle purchases and charges, swaps, and the upgradation of batteries, which should improve customer loyalty.
Nio is recently trading at $20.11, and Wall Street has a 12-month average price target of $40, which is an upside of almost 100%. Analysts remain optimistic about Nio as they expect sales to rise by 67.3% year over year to $9 billion in 2022 and by 69.7% to $15.3 billion in 2023. While still unprofitable, Nio is forecast to narrow its loss per share from $1 in 2021 to $0.13 in 2023.
Nio is a prominent player in China's EV market and is heading towards grabbing a more significant market share. Earnings fluctuations like this are common for growth stocks, and Nio has the potential to become one of the biggest winners over the coming years. NIO stock is still cheap, so if you want to dive into the largest EV market, you should consider adding Nio to your portfolio.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
