Nio Stock Is a Solid Buy After Rough Week

Nio’s April deliveries were up triple digits, China’s car slump ended and electric car subsidies have been extended

China’s Nio (NYSE:NIO) is about to release first-quarter earnings. In 2019, investors learned to dread these events. Each was a tale of misery — everything from the company’s cars catching fire, to layoffs and a struggling electric vehicle market dealing with the prospect of subsidies being cut. After closing at a record high $10.06 last February, NIO stock cratered, dropping to the $1.50 range by November. That was after an earnings report so bad in September, that the company had to postpone its earnings call. Don’t expect the same doom and gloom this week.  

In fact, after dropping over 11% in the past three days of trading, now would be a great time to consider snapping up NIO stock.

What to Expect This Quarter

Nio announced it will report first-quarter 2020 earnings on May 28. The quarter ending March 31, 2020 encompasses a very difficult period for China. The novel coronavirus pandemic that Americans are struggling with today was in full effect in China through much of that time. It hit its peak in February, when the city of Wuhan was essentially locked down. 

Supply chains were disrupted and factories were idled across the country. Do you think Chinese consumers were buying cars? Especially premium electric cars? According to updates published by Nio, its car deliveries slumped 12.8% in February. Given the circumstances, that’s hardly shocking.

However, the March update showed that sales were picking up significantly. CEO Bin Li told investors:

“In parallel with our continued online sales efforts, our in-store visits have also witnessed a gradual pickup. With the continuous support from our loyal user community, we have seen increasing order backlog since February.” 

April numbers were even better. The company reported deliveries up a whopping 180.7% year-over-year. Those sales won’t be included in the first-quarter numbers, but you can bet they will be part of second-quarter guidance.

Why the Future Looks Good For Nio

There’s no arguing the point that Nio had a terrible 2019. Nio shares tanked through much of the year, and investors who bought in during the peak in February got burned.

However, after a series of stumbles last year, the company appears to have gotten its act in order. Operations are leaner, sales outlets are expanding, margins are improving and Chinese consumers appear to be snapping up the ES6 — the premium five-seater Nio SUV that began delivery last June.

There are big factors outside of Nio’s control that are also good news. Part of the company’s problem last year was an extended slump in car sales in China. Adding to the misery, China slashed the subsidies that helped promote electric car sales. That resulted in an even worse hit for the EV sector than the auto industry in general — no wonder NIO stock performed so poorly.

With the coronavirus hitting China in the first quarter, it should come as no surprise that auto sales were slammed. According to data from the China Association of Automobile Manufacturers, sales were down 42% in Q1. That makes Nio’s performance in the first-quarter look pretty impressive in comparison. The Chinese government reacted by announcing it would extend subsidies for electric cars for an additional two years. That’s huge for Nio.

The news gets better. It has been reported that China broke its 21-month auto sales skid in April, with sales up 4.4% compared to last year. Chinese consumers are buying cars again.

Bottom Line on NIO Stock

Nio is often called the “Tesla of China.” I’m not expecting to see Tesla-level growth from Nio — at least not yet. But after a year of being battered, I think this Chinese luxury EV maker is set to shine. Don’t expect its first-quarter results to be stellar, but I expect optimistic guidance for the rest of the year. With market forces and government programs aligning in its favor, look for Nio shares to rev up in 2020.

Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.