NIO: Ramp Mode

As long discussed, NIO Inc. (NYSE:NIO) has struggled over the last year to make the next step forward in the global electric vehicle ("EV") market. The Chinese company reported a very impressive launch sales to their new ES6 vehicle, setting up a potential ramp. My investment thesis is ultra Bullish on the Chinese EV manufacturer, though risk exists the company won't be able to maintain sales momentum in the months ahead.

Another Weak Month

Heading into a new product release, the biggest issue is always paused sales waiting on the next product, or vehicle in this case, to launch. For May, NIO only delivered 6,155 vehicles for one of the lowest totals in the last couple of years.

In essence, NIO has now reported 2 months where vehicle deliveries are flat to down for the last 2 years. The Chinese EV company had made some progress in growing deliveries back towards the record levels, until both April and May disappointed.

As the above chart highlights, NIO has struggled to consistently grow vehicle deliveries. The Chinese EV company reports a few months of sales jumps to only revert back towards previous delivery levels.

ES6 Launch

The company launched the highly anticipated ES6 back on May 24 with deliveries starting the next day. The electric SUV built on the new NIO Technology 2.0 platform starts at a price tag of $52K with 3 different battery options, including a 150 kWh semi-solid battery for an incredible 930 km range.

NIO is reported to have taken in massive orders during the first four days at the end of May, leading to an average of 90 pre-orders per store with 20 confirmed orders with a down payment. The amounts work out to 29,700 pre-orders and 6,600 confirmed orders.

The order amounts are incredible considering NIO only delivered similar vehicle levels during the last couple of months as the confirmed orders for 4 days of the new vehicle. The big question is how long these order levels can last and whether the company can meet this higher level of demand.

NIO even announced plans to launch another vehicle in June. The ET5 Touring mid-size wagon will be based on the NT2.0 platform as well and adds to the expected launch of the ES8 sedan this month, previously announced at NIO Day 2022.

The Chinese EV company will announce Q1'23 results on June 9 pre-market, and investors will definitely key into the Q2 vehicle delivery guidance. Based on April and May numbers, NIO has only delivered 12,813 vehicles this quarter after reaching 31,041 vehicles in Q1.

The massive orders for the ES6 to end May would support a large delivery total for June. The company regularly topped 10,000 in monthly deliveries back in 2022 and early 2023, so investors probably won't be impressed without a June number blowing past the 5-digit level.

The problem facing NIO is that big deliveries in February and March were followed by a nearly 50% dip in sales. The Chinese EV company needs to convince investors sales will start growing on a more sustainable path, otherwise, profits will be hard to maintain when sales figures are volatile and efficient production becomes very difficult due to lumpy figures each month.

No doubt, the market will want to see NIO top 15,000 in monthly sales. The Chinese EV manufacturer reported Q4'22 vehicle deliveries of 40,052 leading to $2.3 billion in sales, setting a quarterly record.

Analysts have cut consensus sales for the years ahead, but NIO quickly gets to some rather large revenue numbers here, with an $11.8 billion target for 2023. Analysts have revenues ramping up from $2.6 billion in Q2 due to the weak April/May, leading to sales of $3.4 billion in Q3 and $3.8 billion in Q4.

The Q2 target is definitely aggressive, with NIO needing to deliver an incredible 27,000+ vehicles in June (nearly double the prior monthly peak) to top the Q4 levels. The market cap has fallen to only $13 billion now, and the initial order success of the ES6 could finally place NIO on a path to much higher sales figures.

As NIO hits higher quarterly sales figures, a big key will be the path to profits. The market will definitely want to see a company topping $10 billion in sales start reaching a profitable business, especially with the technology platform NT2.0 to help improve margins.

Takeaway

The key investor takeaway is that NIO Inc. has been crushed this year due to volatile and generally weak vehicle deliveries. The ES6 launch, along with 2 other vehicle releases, have the potential for pushing the Chinese EV manufacturer into ramp mode.

Investors should continue using the weakness in NIO Inc. stock to build a position in the promising Chinese EV manufacturer heading into Q1 earnings on June 9. NIO stock has the potential to rally on strong guidance, though risks exist that early order momentum doesn't last and NIO continues ticking lower.

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