Image source: Sam Robson, The Motley Fool UK
What a couple of months for the electric car maker CHILD (NYSE: NIO). NIO stock is up 53% in the last two months.
That's what investors dream of, although, to be fair, it still leaves NIO 91% off its 2021 high.
However, from a long-term perspective, I would also highlight the five-year share price performance. During that period, NIO stock rose 271%.
Here I want to dive deeper into what has been happening with the share price and whether this may indicate a change in the share price that could justify purchasing NIO for my portfolio.
Massive sales growth
The key trigger for NIO stock's rise, as far as I'm concerned, was the quarterly earnings statement it released last month.
Vehicle deliveries during the quarter exceeded 57,000. That represented growth of 144% compared to the same period last year.
I see it as good news in two ways.
First of all, the growth is spectacular. It suggests that NIO has established an increasingly credible position with at least some customers in what is a competitive market. Secondly, in absolute terms, I think the sales figures are respectable.
Of course, they are far behind their rival. tesla. In its last quarter it delivered 463,000 vehicles. NIO's deliveries were less than one-eighth of Tesla's. But they still amounted to more than 4,000 vehicles per week on average. I see it as substantial.
I think the sales volumes are significant (and help explain the recent rise in NIO stock) because automobile manufacturing and distribution is a game of scale. There are large fixed costs, so increasing volume is important to spread those costs.
NIO has strengths, but also weaknesses
So far, so good.
NIO is building a customer base. It has shown that its vehicles, which are not cheap, can attract customers on a large scale. It also has a number of competitive advantages, including its patented battery swapping technology. I believe this addresses a key complaint many people have about rival EVs, namely their limited range.
However, it has yet to prove that it can turn that positive sales momentum into profits.
Yes, its net loss in the most recent quarter was 17% smaller than the prior-year period. But it still reached more than 500 million pounds. In my opinion, it's a lot of money.
To evaluate whether NIO stock is attractively valued or not, I consider its long-term financial prospects. But, in my view, a key piece of the puzzle is still missing. NIO has yet to prove it can be profitable, much less consistently.
Tesla also made losses for many years before going into the red. The same could happen with NIO. But it faces risks including a highly competitive market and an uncertain geopolitical climate that could hamper the Chinese company's international expansion plans.
For now, given those risks, I don't plan to invest.
