I have been following electric vehicle maker NIO (NYSE: NIO) for a while. But I am still surprised at the recent price action. NIO stock has jumped over 80% in a matter of weeks, since the end of August!
That sort of remarkable rise is the stuff of investor dreams. It also underlines how volatile the NIO stock price can be, though. It has more than quadrupled in five years, but remains almost 90% below its 2021 peak.
So, could now be the time to add the company into my portfolio?
Business trend is positive
NIO’s strong performance reflects a very positive quarterly trading update it gave the market at the start of last month.
In the second quarter, vehicle deliveries grew 143% compared to the same three-month period the prior year. NIO cars are not as familiar a sight on British roads as those made by Tesla and its sales volumes are still far below its US rival.
Still, NIO’s second quarter deliveries equate to well over 4,000 new vehicles being sold every week on average. NIO is not some conceptual startup with a plan to build cars. It is already a large-scale industrial concern that is producing and selling vehicles at volume.
Good news for the investment case
I regard that as excellent news.
My view on NIO has long been that it has the makings of a good business: attractive models, a growing customer base, and battery swapping technology that helps set it apart in an increasingly crowded market. But the large fixed cost base of automotive manufacturing means that it needs to ramp up volumes significantly to improve its financial position.
The latest quarterly figures show that the company is making strides in that direction. I see that as positive for the investment case.
Still, the company reported a net loss for the quarter equivalent to over half a billion pounds. That was an improvement of around 17% year on year. That helps show how increasing volumes can help the company on its path to profitability.
Is it time to buy?
Still, although that is welcome progress in the right direction, that loss is still substantial in my view. The firm’s current market capitalisation is around £11bn.
So I feel the recent dramatic increase in the NIO stock price may reflect investors breathing a sign of relief at the positive trading news, rather than believing the company is worth 80% more than it was a few weeks back.
On that basis, I think the price could keep growing from here if there is more strong trading news – or fall if there is an upset like a quarterly volume that is weaker than Wall Street expects.
But there is still a lot of work to be done for NIO to prove it can turn a profit, let alone do that consistently. For now it remains too speculative for me, so I will continue to watch closely but have no plans to buy NIO stock just yet.
