Nio (NIO) Stock is Poised for Long-Term Returns

Chinese electric vehicle (EV) maker Nio (NYSE:NIO) saw its shares hit all-time highs early this year. With a series of missteps behind it, consumers buying more EVs in China, and its factories churning out record numbers of vehicles, Nio was on fire. But after closing at $62.84 on Feb. 9, NIO stock began to slide.

A number of factors, including a general tech stock selloff and concerns about chip shortages, contributed to the fall. Several rallies have petered out, but NIO is rising again after a closing low of $31.22 on May 13.

This time, it may just stick. Investors have absorbed the bad news, like those chip shortages. Now there’s some good news, and it’s fueling another NIO stock rally. NIO has gained more than 20% since I wrote that it was a tempting opportunity two weeks ago.

With shares still trading far below February levels, is Nio a company you should consider investing in? Or is Portfolio Grader “B”-rated NIO stock still too volatile? The latest news from the company may provide a clue on where shares will go from here.

Nio Signed a 3-Year Manufacturing Deal

Nio has been on a roll this year, delivering a steady stream of impressive monthly vehicle delivery updates. The latest, released in April, showed 7,102 vehicles, representing 125% year-over-year (YOY) growth. Last October, Nio’s CEO announced plans to up the company’s production capacity to 150,000 units in 2021.

What many people don’t realize is that Nio doesn’t actually make its own vehicles. Production is handled by Jianghuai Automobile Group (JAC), a vehicle manufacturing company owned by the Chinese government.

The big news this week was that Nio inked a three-year renewal of its manufacturing agreement with JAC. This is a critical piece of the Nio puzzle, as it ensures the company won’t face pressure on the manufacturing front until at least 2024. However, the new JAC agreement goes much further. Jianghuai Automobile Group has agreed to raise Nio’s annual production capacity to 240,000 units.

The news of the new JAC agreement resulted in a 5% increase for NIO stock, adding some momentum to its rally.

Nio Is Selling EVs As Fast As It Can Make Them

Dramatically increasing your production capacity doesn’t help if there’s no demand for your vehicles. Unsold cars sitting on lots are never a good thing. However, Nio probably won’t have this problem.

The company is moving EVs as fast as it can make them. In the first quarter, Nio’s vehicle sales were up a whopping 489.8% YOY. To be fair, China was feeling the brunt of the pandemic during Q1 2020, so that’s not as impressive as it sounds. However, even compared to Q4 2021, sales were up a very healthy 20%.

Not only is China’s economy humming, but consumers there are buying more EVs compared to the U.S. In China, passenger car sales dropped 7.6% last year while EV sales were up 4.4% YOY during the same period.

Nio is well-positioned to rack up more EV sales as the economy recovers. The popularity of EVs, the company’s growing product mix and its innovative Battery as a Service approach — which significantly lowers vehicle prices — mean Nio can take full advantage of their additional production capacity.

NIO Stock Is Poised for Long-Term Gains

With NIO stock trading for less than $39 as of last Friday — still below its February levels by more than 35%, despite a two-week rally — now may be the time to take the plunge.

It’s possible this rally will falter. That’s happened to NIO stock three times in recent months, so that is definitely a risk. However, even if it does fall, you’re looking at a little short-term pain versus the very real possibility of long-term growth. In that context, NIO stock is still appealing, especially if you’re looking to add an EV stock to your portfolio.

— Louis Navellier and the InvestorPlace Research Staff

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Source: Investor Place