Nio Inc. (NYSE:NIO): The Chinese Tesla Inc. (NASDAQ:TSLA) Topping Expectations

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A narrower than expected net loss and a promising Q3 guidance affirm Nio Inc. (NYSE: NIO) growth metrics and long term prospects. The Chinese Tesla has been on a fine run, spiking to record highs amid strengthening investor confidence about the company's prospects in the burgeoning electric vehicle sector.

NIO Outlook

Better than expected July delivery data have helped strengthen Nio market sentiments at a time when COVID-19 has rattled sentiments and prospects in the auto industry. The EV giant has since emerged as a force to reckon with and continues to send shockwaves in the automotive industry.

Similarly, the stock is up by more than 300% for the year in what is turning out to be a break out year for the Chinese electric car company. The spike has come at the back of surging trading volume, affirming the amount of interest the stock continues to receive in the market.

A pullback from record highs of $16 a share has already attracted buying pressure from investors who were on the fence after a recent spike higher. Likewise, pullbacks have emerged as buyback opportunities, from where more bulls join the fray and help push the stock higher.

A rally followed by a close above the $16.45 level should affirm the long term uptrend setting the stage for Nio Inc. to continue powering high. Any downside action will have to contend with support at the $11 a share level from where Nio Inc. remains well supported for further upside action.

In our view, Nio looks set to continue edging higher as investors' sentiments in the auto industry shift towards electric car companies.

About Nio Inc.

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Nio Inc. casts itself as an electric car company focused on the design and development of electric vehicles. The company is currently developing five, six, and seven-seater electric SUVs. In addition, the company develops charging solutions, including power game and power Swap.

Why is Nio Inc. Exploding?

Solid Financials

Nio explosive start to the second half of the year stems from a better than expected second-quarter earnings report that once again affirms the company's growth metrics amid a challenging environment fuelled by COVID-19. The company reported a narrower than expected net loss with revenue topping analysts' expectations.

Excluding one-time items, the company lost $0.16 a share against an expected net loss of $0.26 a share. Revenue, on the other hand, topped consensus estimates coming in at $526.4 million against analysts' estimate of $504 million.

Deliveries in the quarter were up 191% to highs of 10,331 vehicles, affirming strong demand for Nio inc. cars. The strong deliveries allowed the EV giant to post its first positive gross margin of 8.4% compared to -33.4% reported a year earlier.

Nio Guidance

Investor sentiments in the Chinese EV giant inched higher after it emerged, the company has inked a deal with economic development authorities in China. Under the terms of the deal, the company is to receive a series of cash infusions, having already received $707 million.

With additional cash injection, the company remains well-positioned to ramp up production ahead of deliveries for the latest model Sporty EC6. Likewise, the company is projecting continued strong deliveries and revenue growth.

Deliveries in the third quarter are expected at between 11,000 and 11,500 more than double 4,799 reported last year. However, revenue could fall to between $572.9 million and $596.2 million.

Tailwinds

While Nio has been on a fine run, a flare-up of tensions between China and the U.S threatens to curtail further upside action. The closure of China's consulate in the U.S, followed by a shutdown of the U.S embassy in China, saw the stock edge lower, affirming the potential impact of the flare-up.

While Nio has hinted of a plan to export its cars to the U.S in the future, a flare-up of tensions between the two superpowers could dent its plans in the future. However, the Chinese market is big enough to provide the much-needed target market.

In addition, the COVID-109 pandemic is another tailwind that could hinder Nio from achieving its production and sales target. Early in the year, the company was forced to go on a slowdown on production as the pandemic triggered lockdowns in China.

Bottom Line

The future can only be bright for Chinese EV heavyweight Nio Inc. The company's market sentiments have inched higher as investors remain bullish about robust sales of electric vehicles given the buzz around EV cars.

Stellar second-quarter financial results supported by record deliveries, narrower net loss, and revenue growth affirm the company's growth metrics and long term prospects. Conversely, the stock look set to continue climbing the ladder given the solid underlying fundamentals.

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