NIO Shares Climb on Strong July Deliveries

The Chinese electric vehicle (EV) market continues to rapidly expand, driving triple-digit delivery growth for NIO (NYSE: NIO) last month. The company provided its monthly update for deliveries this morning, registering 125% year-over-year growth. However, there were some drawbacks investors should be aware of, despite the robust figures.

NIO shares climbed as much as 5% today and were up 4% in late afternoon trading. 

A “modest sequential decline”

NIO delivered 7,931 vehicles in July, up 125% from a year ago. Here’s a breakdown of which models the company sold during the month. The ES8 is NIO’s flagship SUV, while the ES6 is a more affordable SUV. The EC6 is a smaller sport coupe that resembles a compact SUV. Total cumulative vehicle deliveries have now hit 125,528.

ModelDeliveries
ES81,702
ES63,669
EC62,560
Total7,931
Data source: NIO

Deliveries dipped mostly on a sequential basis compared with the 8,083 cars that NIO delivered in June. The global auto industry continues to suffer from widespread semiconductor shortages that have hindered production, creating bottlenecks that have made it difficult for many automakers to meet demand.

It’s unclear if chip constraints contributed to the sequential decline, but local media reports suggested that recent floods in Germany impacted the availability of shock absorbers that NIO uses in its air suspensions. 

“Despite the modest sequential decline in total deliveries, we expect this mainly

reflects the high base in June, which was boosted by orders carried over from

May, when NIO suffered from more serious supply hiccups,” Morgan Stanley analysts wrote in a research note to investors.

Competition is intensifying

Additionally, this was the first time that NIO’s monthly deliveries lagged behind its two primary peers. Rival Chinese EV players XPeng (NYSE: XPEV) and Li Auto (NASDAQ: LI) also reported monthly deliveries over the weekend. XPeng delivered 8,040 EVs in July and Li Auto sold 8,569.

While NIO investors may not like to see the company slip from its leadership position, the overall market for EVs in China is still growing so rapidly that all companies can still benefit. It’s also likely that EV leader Tesla (NASDAQ: TSLA) took a bite out of NIO’s sales by releasing a lower-cost version of its Model Y compact SUV in China last month. After discontinuing the Standard Range Model Y in the U.S. earlier this year, Tesla introduced that variant in China since the lower price tag qualifies for a government subsidy.

Because NIO’s lineup is concentrated in SUVs and has historically been the volume leader among the three top Chinese EV companies, Tesla’s move to undercut may have impacted NIO more than its peers. XPeng sells a sedan and an SUV, while Li Auto only offers an SUV.

NIO is set to report second-quarter results on Aug. 11.

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Evan Niu, CFA owns shares of NIO Inc. and has the following options: long October 2021 $40 calls on NIO Inc. The Motley Fool owns shares of and recommends NIO Inc. Millennial Money is part of The Motley Fool network. Millennial Money has a disclosure policy.

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