Nio stock has come under pressure in the past few months, even as it became one of the fastest-growing companies in the electric vehicle industry. After peaking at $7 on April 7, it has slumped to $4.65, erasing billions of dollars in value. With the stock trading above a crucial support level, is it safe to buy the dip?
Nio, one of the of the biggest Chinese EV companies, has struggled substantially in the past few months. This retreat continued this month, even after it released strong monthly deliveries numbers.
The report revealed that it delivered 35,934 vehicles in July, up by 71% from the previous year. This growth brought its year-to-date deliveries to 227,057, up by 68% YoY.
Its flagship Nio brand had 20,008 vehicle deliveries, while Onvo and Firefly had 10,155 and 5,771 deliveries during the month. Its ES8 sold a cumulative 130,000 vehicles in just 305 after its launch.
The company also launched the new ES8 Five-Seat Version in July. It is also ramping up the production of the ES9 version, whose price ranges between $69k and $87k.
Previously, Nio announced that its second quarter deliveries jumped by 49.4% to 107,658, a sign that demand remains strong. This makes it one of the fastest-growing Chinese EV companies, a trend the management expects to continue.
The rising deliveries means that its revenue growth will be strong. Yahoo Finance data shows that the average estimate is that its revenue jumped by 75% in the second quarter to CNY 33.28 billion. For the third quarter, the estimated revenue is CNY 36.33 billion, while the annual revenue is expected to get to CNY 135.69 billion.
READ MORE: Nio stock crashes on weak outlook despite EV delivery surge: now what?
Most importantly, while a price war is still continuing in China, the company’s gross margins are fairly strong. In the last quarter, the vehicle margin rose to 18.8%, higher than 10.2% in the same period last year. Total gross margin rose to 19% from the previous 7.6%.
While Nio made a net loss in the second quarter, the management has demonstrated that the company can be profitable. In the fourth quarter, its net profit jumped to over $40 million. The management now aims to have a non-GaaP profitability this year.
MarketBeat data shows that there are 14 analysts tracking the company. 2 have a sell rating, while the remaining ones have a hold or buy ratings. The most optimistic analyst has an $8.50 target, implying a 85% jump from the current level.
Nio stock chart | Source: TradingView
The daily chart shows that Nio shares have been in a strong downward trend in the past few months. As a result, it has slumped below all moving averages, a sign that bears remain in control.
However, on the positive side, it is slowly forming a large double-bottom pattern at $4.45, its lowest level in February and July this year. This pattern has a neckline at $7, its highest point this year.
Therefore, the forecast is bullish as long as it remains above the double-bottom level of $4.45. If this happens, it may rebound to the next key resistance level of $5.22, its highest level on july 15, which is 12% above the current level. A drop below that level will point to more downside, potentially to the psychological level of $4.
