One of the many stocks that enjoyed momentum during the pandemic stock bubble was NIO Inc. (NYSE:NIO). The stimulus-induced stock market environment affected it positively, and a strategic partnership with a local Chinese government agency helped boost its standing among its peers. But the Chinese electric vehicle manufacturer is not doing so well this year, as a combination of logistical challenges coupled with inflation and rising interest rates have dented the stock.
To counter the negative momentum, NIO entered the European market with an aggressive subscription-based strategy which can pay off in the long run. It is a great move that adds to the company’s’ already impressive presence in the Chinese market.
Altogether, NIO is a victim of global macroeconomic conditions. It can do little but continue rolling out new models and navigate the supply chain crisis. In the near term, though, the chances of a comeback are slim.
NIO’s main challenges are macroeconomic
The Chinese automaker has faced challenges recently, from suppliers not being able to supply the parts and materials on time to lockdowns in China. The company has delayed production and deliveries due to this. Additionally, the sudden increase in fuel costs was greatly detrimental to the company. China’s increasing power shortage also negatively affected when electric cars could charge.
With the general inefficiency, the production cost is now being hiked up for NIO, and the company has already announced that it will be increasing prices by 10,000 yuan on all three of its SUVs. This is likely to decrease sales and can become a critical blow if this trend continues.
These issues are now creeping into the company’s’ financials as well. NIO recorded a loss of $2.75 billion in its second quarter financials. The company’s main loss factor was the price volatility of Covid lockdowns. The company saw margins beings squeezed due to its expansion efforts. This caused a decline in revenue in the year’s first half, but the CEO believes that the company will perform better in the second half.
Under these circumstances, one of the key things the company can do to keep growing is to expand overseas and keep rolling out new models. On that end, the company is performing well.
NIO is spreading its wings overseas
NIO has made the smart decision to enter the European market. On a practical level, Europe is a huge market for electric vehicles, presenting NIO with a tremendous opportunity for growth and expansion. Additionally, Europe is taking proactive steps to transition away from fossil fuels, making it an ideal setting for NIO to gain traction and establish itself as a major player in the industry. Whether through direct investment or strategic partnerships, NIO can promote its mission of accelerating the development and adoption of clean energy while benefiting from Europe’s large and growing demand for EVs.
Thus, NIO’s decision to enter the European market makes sense on multiple levels: it will help it expand into a thriving market while aligning with current technology and environmental policy trends. Ultimately, NIO’s efforts in this arena will benefit the company and the world by promoting cleaner transportation options and helping to reduce carbon emissions globally.
NIO entered the European market in 2021 through a much-hyped launch in Norway, and it is currently expanding its reach to four more countries – Germany, the Netherlands, Denmark and Sweden.
The company is now taking orders for its flagship products and is offering a subscription model. It will essentially be renting (i.e. leasing) its vehicles instead of selling them in Europe. The company is committed to having 20 battery-swap stations throughout Europe by 2022 and 120 by 2023. The program allows consumers to swap drained batteries for new ones.
It is too early to discuss the company’s decision to enter the American market. NIO recently posted jobs for a head of construction and user infrastructure and a project manager for architecture and interiors. However, this personnel will be used to launch NIO Houses in America. They aren’t used for sales; rather, they’re used as experience centers. They offer an inviting living room, a meeting space and a library. This will help American consumers become familiar with the brand. But for now, launching a more holistic American business is a distant dream. China remains NIO’s largest single operating territory, which exposes the company to its unpredictable lockdowns and the weakening of the yuan against the U.S. dollar.
Takeaway
NIO has a lot of potential and is already growing quickly. This cutting-edge electric vehicle manufacturer has rapidly gained popularity thanks to its high-performance vehicles, which offer great driving performance and sleek design at an affordable price.
There are many short-term headwinds that likely mean the stock will not go up in the short-term. Nevertheless, investors with a strong tolerance for risk may still find NIO attractive due to its strong innovation potential and growth in the booming electric car industry. Ultimately, NIO remains a promising investment opportunity, but only for those willing to weather this period of turbulence and uncertainty.
This article first appeared on GuruFocus.