In the wake of a sell-off, growth stocks are considered to be an attractive investment. A company’s market value increases as they grow and expand their business into new markets or introduce innovative products that are eventually adopted by consumers across different demographics in society. NIO stock fits the bill and then some, so do not be perturbed by its 16.7% drop in the last month.
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Apart from the general issues affecting the market, there are other factors weighing down NIO stock.
Nio’s car deliveries declined by 55.7% quarter on quarter in February to 707 units, according to an announcement released today. ES6 has made up the majority of deliveries while ES8 is providing much less volume. While Nio had a 12.8% annual decline in February, the numbers were still significantly above those the wider EV industry experienced.
NIO is one of a number of EV manufacturing companies from China that has been hard hit recently by the poor demand for their vehicles amid the Covid-19 virus crisis and Tesla’s Model 3.
It seems Tesla has finally found their footing in China. The company reported a record-breaking month of February, with 3,958 Model 3 cars delivered to customers around one-third of total countrywide volumes.
Overall, you need to put all the numbers into context. China’s new energy vehicle sales, including all-electric cars and plug-in hybrids, plunged by 77% year on year to around 11,000 units in February. This marks the eighth consecutive month of decline since July.
NIO’s future delivery growth should make an impact on its market value. This will lead to a revaluation in their success and the stock price.
NIO Stock Goes Down as Growth Streak Snaps
Though Nio’s year first began on shaky ground, it seems that the company has fared well over the past few months. The Chinese EV maker delivered 7,225 cars in January, more than four times the number of cars they delivered during the same month last year.
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Nio marked the sixth-straight month of record-high deliveries with more than 82,000 cars delivered cumulatively. However, the good times cannot last forever.
The Chinese startup noted that it sold its lowest number of cars in the past few months, with 707 all-electric cars being sold in February. In contrast to last year, which was also slow, year-over-year car sales are down by 12.8%. The company is hoping that by avoiding public gatherings and restarting service operations early in response to an outbreak, they can limit the damage caused by restrictions on deliveries during this time. Even with the slight decrease, Nio continued on a great path in terms of performance in January and February. The drop in February was small compared to other automobile companies.
Plus, a slow sales season typically occurs around the time of Chinese New Year, but the month-over-month decline in deliveries due to this is not expected to continue.
NIO’s sales during this period have been declining, but not because of a lack of capacity or marketplace demand. The sequential drop in deliveries is entirely market-driven.
Rebound is around the corner
We already know that NIO has been working on its sedan market and plan to launch its ET5 in the market in FY 2022, which means they could see a ramp in deliveries towards the end of the year. Nio’s new flagship car, the ET7, is ready to launch next month. They already have confirmed orders for the car and will start delivering them on March 28th.
China is home to some of the largest electric vehicle markets in the world, which makes them an ideal location for NIO’s new sedans. And it seems that this market could get even bigger by the end of 2022. However, Norway and Germany should be some of the first countries where ET7 are made available and they can help attract new export markets.
Electric car production rates & deliveries are increasing over time as it becomes easier to deploy these cars. This is because they’re typically affordable and don’t require fossil fuel to generate power, making them considerably more sustainable.
While I don’t expect NIO to beat its competition regarding delivery growth in FY 2022, NIO does have a shot at improving its delivery growth once its product lineup gains in density and new all-electric sedan models start complementing its existing range. International expansion could be a catalyst for both international deliveries and NIO’s shares.
The firm’s valuation is at risk due to falling behind its rivals regarding delivery growth and output levels. A commercial risk that could affect NIO’s production & delivery prospects for FY 2022 would be the limited availability of computer chips, which may still pose an issue this year; deteriorating supplies might cause problems with their ability to produce products as planned–and lead to tougher headwinds in the interim period.
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