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NIO (NYSE:NIO) shares appear to have been range-bound since October. However, since May, the electric vehicle (EV) maker’s stock has pushed up around 35% before hitting a wall at around $10.50.
So what does this mean for investors? And is there any hope of seeing NIO breaking out towards the $20 a share valuation we saw this time last year?
Deliveries underwhelm
While market conditions, Chinese economic data, and rival Tesla‘s performance all have a considerable and perhaps exaggerated impact on NIO’s share price, its underwhelming performance in recent quarters accounts for its current slumber.
In March, the company delivered 9,652 vehicles, down from 10,489 in February. This was the company’s lowest monthly delivery since October 2022, and alerted investors to the ongoing challenges the company has been facing.
These include:
- Chip shortages
- Supply chain bottlenecks arising from prolonged lockdowns in China
- Increased competition, especially from price-cutting Tesla
In the first six months of 2023, NIO achieved a promising year-on-year increase of around 15%, delivering 54,561 new vehicles. While this growth may appear slower compared to the pace seen in 2021 and 2022, NIO remains confident in its ability to reach its full-year delivery target of 240,000 vehicles.
Hitting target
Simple maths tells us that if NIO delivered 54,561 new vehicles in H1, it’s going to need to deliver 195,439 in H2 in order to hit target. Personally, I don’t think the market truly believes NIO will be able to increase deliveries nearly fourfold for the coming six months.
Hitting these targets will be dependent on more production capacity coming online. The firm has recently expanded its production capacity at its original Hefei plant by 20%, taking the plant’s total annual production capacity to 150,000.
NIO has also constructed a new plant on the Neopark site, also in Hefei. It’s understood to have a capacity of 150,000 a year, but when announced, William Li, NIO’s founder, said production could hit 1m vehicles a year. Quoted figures vary greatly.
In short, if it can demonstrate in the coming months it’s on target to hit delivery objectives, the share price should respond accordingly. We may even see the share price approach 2022 levels.
This is somewhat mirrored in the forecasts. Analysts anticipate revenue in H2 to surge to $7.3bn, versus an estimated $4.3bn in H1. However, these figures may not entirely capture the magnitude of the fourfold increase in deliveries required for the coming months.
Opportunity beckons
It always feels risky buying a stock towards the top end of a trading range, even if it’s down 50% over 12 months. However, there’s plenty of evidence that the market is starting to believe in NIO once again, even if investors don’t quite believe NIO will hit production targets in H2.
While I’m incredibly hopefully that NIO will hit delivery targets in H2, I remain very bullish on NIO because of it’s long-run prospects, characterised by its unique battery-swapping technology and it’s range of high-performance, yet modestly-priced vehicles.
Taking into account it’s potential for long-run growth, in addition to any short-term gains that will arise if it hits target, it looks cheap at just 1.92 forward sales.
