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Temporary Headwinds Present Opportunity By TipRanks


© Reuters. Nio Stock: Temporary Headwinds Present Opportunity

For year-to-date 2021, Nio (NYSE:) stock has been an underperformer. The stock’s performance has been a decline of 34.3% over this time.

There are a few factors that contributed to the stock’s decline. Chinese stocks are suffering from regulatory challenges. In addition, Chinese car sales are down for the fourth consecutive month due to chip shortages. (See Nio stock charts on TipRanks)

A potential delay in the company’s Hong Kong stock listing is yet another reason for weakness in Nio stock. But these headwinds can be temporary, so there is still a chance.

Because of the potential for robust growth in multi-years, I believe Nio stock is a good investment.

Bullish Long-Term Outlook

The EV industry is at a growth inflection point, and China seems to be leading the way. BYD founder Wang Chuanfu believes that new energy vehicles will account for 70% of China’s new car sales by 2030.

China also imposed a 40% EV mandate on all automakers.

Deloitte projects that the EV industry will expand at a 29% CAGR over the next ten years.

Strong Balance Sheet for Growth

As of June 30, 2021, Nio reported cash and equivalents of $7.5 billion. The company will be able to achieve aggressive growth if it has strong liquidity.

Nio’s expansion plans outside China are a potential stock catalyst. This year, the company plans to expand its presence in Europe. At the same time, Nio has plans to expand its presence in most important global markets by 2023-24. International expansion is likely to ensure that the company’s vehicle delivery growth remains strong.

Nio’s launch of new cars is another good catalyst. In 2022, the company plans to unveil new products based upon NIO Technology Platform 2.0. The premium electric car is one of these products.

Nio has plenty of financial resources to invest in new products and innovation. Further, Hong Kong’s planned listing will boost the cash buffer.

Gradual Improvement in Margins

Nio has continued to report strong vehicle deliveries, even with chip shortages. The company delivered 21,896 vehicles in Q2 2021. Deliveries increased by 112% year over year.

Nio also saw a steady improvement in its vehicle-level margins due to the increase in deliveries. The vehicle margins increased by 1,060 basis point year-over-year to 20.3% in the quarter.

Wall Street’s Take

According to TipRanks’ analyst rating consensus, NIO stock comes in as a Strong Buy, with six Buys assigned in the past three months.

NIO’s average target price is $67.52 per shares, which implies 92.2% upside potential compared to current levels.

Bottom Line

For Q2 2021, Nio reported research and development expenses of $136.9 million. The expenses increased by 62.1% year over year.

Nio’s focus has been on the development of new products and innovating technologies. They are expected to keep Nio ahead of its competitors in a competitive marketplace.

The stock’s price has been impacted by the lack of chips. Nio stock will see a rebound once temporary headwinds recede.

Disclosure: Faisal Humayun had no position at the time this article was published.

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