Investors have struggled to make up their minds about Chinese electric-vehicle maker NIO ‘s stronger-than-expected results, reported Thursday evening.
At Friday’s open, NIO shares were down more than 3% from Thursday’s $39 closing price. But the stock closed at $39.84, up 2.2% on the day. The S&P 500 and Dow Jones Industrial Average, for comparison, fell about 0.7% and 0.5%, respectively.
There are a few reasons for the stock’s reversal, including the company’s consistent production of EVs despite a global chip shortage that is affecting all auto makers.
For the first quarter, NIO lost 23 cents a share, but analysts had projected a loss of 84 cents. In addition, management’s sales guidance for the second quarter is $1.2 billion to $1.3 billion. Analysts, coming into the earnings report, modeled about $1.2 billion.
Still, the global semiconductor shortage is affecting production. “The current situation in the market is quite volatile and we have been tracking the chip supply every day,” said CEO William Li on the company’s earnings conference call. “This has been a very severe issue for the whole industry supply chain.” He sees more significant impacts from the shortage starting in May.
Analysts, for their part, are looking past the shortage and appear pleased with the report. Mizuho analyst Vijay Rakesh called the results solid, noting that production is still holding steady at about 7,500 vehicles a month. He rates shares Buy and has a $60 price target for the stock.
Steady production in the face of industry turmoil is the first reason NIO’s stock priced turned around Friday.
The second is new capacity. The company also announced its participation in NeoPark, a mammoth 17-acre industrial park that can eventually produce 1 million vehicles and 100-gigawatt hours of battery cells. (One hundred gigawatt hours is enough batteries for roughly 1 million to 2 million new EVs. The amount, of course, depends on the size of the battery pack in each vehicle.)
“This industrial park will be a massive project, including manufacturing facilities, R&D and residential areas as well as culture areas,” Li said on the call. “NIO is going to be a very important company in this park, but according to the planning of the Hefei Government, they will also have probably hundreds of other companies adjoining this new park.”
The final reason for NIO’s stock turn Friday is about competition. NIO investors have worried about the Chinese-built Tesla (TSLA) Model Y, among other new EV entrants. Li didn’t sound all that worried. “Our focus is the market share of the premium market,” he said. “We don’t want to have the same strategy as other brands that just cut their price from time to time because we believe this is going to hurt the brand image and the users.”
Li added that EV penetration into the premium segment of the market remains low, giving the company plenty of room to grow.
Friday’s gains help NIO stock cut into its year-to-date losses. After an amazing 2020, when the stock rose more than 1,100%, shares are down about 18% so far in 2021.
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