Prediction: This will be Nio’s next big move

It might be hard for investors to get excited about a company that lost nearly $1.5 billion from its operations in the first half of this year. In fact, the Chinese electric vehicle (EV) manufacturer. Nope (NO -2.22%) never made a profit.

This helps explain why the stock has lost more than 80% of its value over the past three years. But there was also some significant and positive news in Nio’s second quarter report. That business momentum has translated into the stock price, as Nio’s US storage shares have surged more than 40% in the past month.

The company’s market cap is now about $11 billion, and the electric vehicle maker ended the quarter with $5.7 billion in cash and cash equivalents. This makes now a good time to see what Nio’s next big move will be and whether it is a stock that should be in the portfolio.

One step towards profit

One of Nio’s most notable achievements in Q2 was the significant increase in profit margin for vehicles. Vehicle margin, which is based on revenue and cost of new vehicle sales, was 12.2 percent in the quarter, compared to just 6.2 percent in the year-ago period. This was helped by revenues that nearly doubled year-on-year.

After years of fits and starts, it looks like the Nio is finally hitting its stride in vehicle production and sales growth. This comes as global competition has increased in the EV sector. Nio sold more than 20,000 electric vehicles for the first time for four consecutive months. This helped in gaining market share and increasing margins.

Data source: Nio. Chart by author.

The company just set a new quarterly record with over 57,000 units shipped. It also provided guidance for third-quarter vehicle deliveries in a range of 61,000 to 63,000 electric vehicles. Nio CEO William Li noted that the company’s sales volume in Q2 led it to secure more than 40 percent of the market share in China for electric vehicles priced above the equivalent of about $42,000. And Nio has a plan to keep expanding. Its focus on the luxury side of the market has helped it compete with the Chinese electric vehicle leader BYDwhich claims most of the Chinese market for lower-priced electric vehicles.

Addressing range anxiety

Nio has been a leader in China and elsewhere in the expansion of battery charging and its unique battery-swapping technology. Nio’s battery swap stations offer EV buyers the option to reduce the initial cost of the vehicle by paying a monthly subscription to its Battery as a Service (BaaS) plan. Drivers can use the swap stations to replace dead batteries with freshly charged ones, a process that only takes a few minutes.

Last month, Nio announced a new plan to strengthen its charging and battery exchange network across China. His “Power Up Counties” plan will accelerate the building of those networks.

As of August 31, Nio had more than 2,500 battery exchange stations globally, with more than 800 strategically located on China’s highways. With more than 577,000 Nio vehicles on the road, it has provided battery replacements more than 50 million times. His new plan will result in power exchange stations available in thousands of counties in China by the end of next year. It also plans to build a new factory to create up to 1,000 power swapping stations annually.

Mass market brand

Nio’s new Onvo brand will also use its expanding charging and sharing networks. Onvo is Nio’s new entry-level electric vehicle brand, which is trying to exploit more of a mass market and take over adzeModel Y. The Onvo L60 mid-size SUV has a starting price of around $30,000.

This brand, combined with Nio’s existing and growing technology and charging infrastructure, could be the next driver for Nio’s business and stock. Investors who are willing to be aggressive could add Nio shares now, anticipating the next stage of growth with Onvo. Otherwise, watch for signs of Onvo gaining traction to be somewhat more conservative and potentially preempt Nio’s next big move.