There’s understandably been some concern as of late about Nio (NYSE:NIO) because of the global semiconductor shortage. And those fears were amplified late last month when the electric vehicle (EV) company announced it would suspend vehicle production for five days. Does that mean NIO stock’s days as a high-flying growth stock are coming to an end?
Not at all.
In fact, Nio made a follow-up announcement this month that gives bullish investors reason to celebrate. Because despite the aforementioned semiconductor shortage, Nio is producing more EVs than ever.
I expect that trend to continue, with Nio maintaining strong year-over-year growth through the end of the year.
The Semiconductor Shortage
First, let’s take a look at the semiconductor shortage that is affecting Nio and other automotive stocks.
The shortage is one of the side effects of the novel coronavirus pandemic. People were forced to remain home for months. They worked from home, they went to school at home, and they had to rely on in-home entertainment.
Naturally, the demand for tech devices like new computers and gaming consoles went through the roof. That means fewer semiconductors for the automotive industry.
Deloitte says that the typical motor vehicle has roughly 1,300 semiconductor chips. But electric vehicles operate many more — as much as 3,500 semiconductor chips per vehicle.
Nio previously announced that the shortage would affect production of new vehicles in the second quarter. CEO William Li told analysts that Nio is capable of producing 10,000 vehicles per month. But the shortage means the company will slow production to 7,500 vehicles.
Predictably, that announcement sent NIO stock lower.
Skittish investors who are taking their profits in Nio stock should look at the bigger picture. Despite the semiconductor shortage, Nio is producing more EVs than ever. The growth from a year ago is through the roof.
In March, Nio says it delivered 7,257 vehicles, which is a new company record. That includes 1,529 of the company’s ES8s, which is a seven-seat premium SUV; 3,152 ES6s, which is the five-seat model SUV; and 2,576 EC6s, which is the five-seat high-performance coupe.
In all, Nio’s March deliveries resulted in year-over-year growth of 373%.
For the first quarter, Nio delivered 20,060 vehicles, which was year-over-year growth of 423%. That number came as a pleasant surprise because Nio had revised its forecast of quarterly deliveries to 19,500 from its previous forecast of 20,000 to 25,000.
So, despite the semiconductor shortage, Nio was able to fulfill its original forecast after all. That prompted Bank of America Securities analyst Ming Hsun Lee to reiterate her “buy” rating on NIO stock, and set a price target at $63.
That’s a projected upside of 59%.
It’s Not Just About EV Sales
Nio recently announced the launch of its first fully autonomous driving electric sedan, the Nio ET7. And that’s reason for Nio shareholders to celebrate.
But a sometimes overlooked part of the Nio story is its sales of items that aren’t electric vehicles. It also offers products such as charging stations, internet connection services for vehicles, and warranties. The company also has energy packages that includes batter swapping and charging. And its service packages include repairs, maintenance and an enhanced data package.
Nio says revenue from these lines of business increased by 184.1% to 71.6 million in the fourth quarter of 2020.
The Bottom Line on NIO Stock
It may be hard to beat Nio as a long-term growth stock. The electric vehicle market is exploding. And nearly half of all electric vehicles (47%) purchased in the last 10 years were from China.
Beijing is fully invested in Nio’s success. The Chinese government chipped in more than $1 billion in 2019 for Nio to get off the ground. The company also has a partnership with Anhui Jianghuai Automobile Group, which is a state-owned auto manufacturer.
Despite the semiconductor shortage in Q2, Nio is producing more electric vehicles than ever and soon will be able to get up to the 10,000-per-month level.
Nio stock has an A grade in my Portfolio Grader, where it continues to have a strong buy recommendation.
— Louis Navellier and the InvestorPlace Research Staff
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Source: Investor Place