Nio Stock Plunges Before Earnings: Should You Buy?

Nio ( NIO -2.61% ) is all set to report its fourth-quarter and full-year numbers on Thursday. It will be one of the most anticipated reports of the season in the electric vehicle (EV) industry for the simple reason that Nio is viewed as the closest competitor to EV leader Tesla ( TSLA 2.05% ) in China, the world’s largest EV market.

It was also one of the most hyped EV stocks to debut on the U.S. stock market last year, until the company ran into a series of negative catalysts — an abrupt drop in deliveries in October, a cut in government subsidies on new energy vehicles in China at the beginning of this year, and the threat of Chinese stocks getting delisted from U.S. exchanges, to name a few.

Momentum for Nio stock was noticeably building until last week, driven partly by recent developments in China. The EV maker, though, kicked off this week on a weak note; Nio stock plunged Monday morning. Is this an opportunity for you to buy the stock before earnings?

Before you act, consider what Nio’s earnings report is liable to look like.

To start with, Nio could see lower gross margins and wider losses due to the intense ongoing cost pressures on auto manufacturers generally, and EV manufacturers in particular. The prices of raw materials like nickel and key parts like batteries have risen so high and so fast that Tesla raised the prices of its EVs in the U.S. and China twice in just about a week’s time.

Nio, though, just confirmed it will not hike its prices, though it  also said it will make decisions as the situation warrants.

One of those decisions could be to raise the price of its battery-as-a-service (BaaS) subscription, under which customers can buy a Nio vehicle without batteries at a lower price, and charge or rapidly swap out batteries on demand for a monthly fee. Investors should keep an ear out for any updates on this program during the earnings conference call.

One other important point to focus on, though, will be its delivery numbers. We already know that Nio delivered 25,043 vehicles in Q4, but it could end the first quarter behind that total, given that it delivered only 15,783 EVs in January and February combined.

Image source: Nio.

That shouldn’t be of too much concern — nearly every EV start-up is struggling to scale up production right now. What matters is that Nio is still on track to start deliveries of its flagship ET7 sedan on March 28 and is also taking reservations for its midsize ET5 sedan. It also plans to launch another model and expand into at least three European countries in 2022.

If Nio can stay on track with its growth plans, there’s no reason why its stock shouldn’t rally.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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