Nio (NYSE:NIO) has been a volatile name lately, but the bias has been to the upside. With its earnings report on Aug. 11 before the open, Nio stock is moving higher. Or should I say, it was moving higher.
Shares were up more than 8% in early trading near $15.50. However, shares were fading shortly after the open, potentially shifting the setup to a more bearish tone.
Can Nio still run to all-time highs? I think it’s possible, but let’s take a closer look at the quarter, then at the charts.
Nio Sets Record Deliveries
The Chinese EV maker is finally hitting its stride. The company lost 15 cents per share in the second quarter, 10 cents per share better than expected. Revenue of $526.4 million grew almost 150% year-over-year and beat estimates by more than $24 million.
Even better, Nio generated gross margins of 8% — far better than the -33% gross margin figure it sported in the same quarter a year ago. Vehicle margin was 9.7% vs. -24.1% in Q2 2019.
Whether we’re talking about Nio, Tesla (NASDAQ:TSLA), or eventually Nikola (NASDAQ:NKLA), the stat that matters the most is deliveries. In the quarter, Nio delivered more than 10,300 vehicles, nearly triple the 3,553 from a year ago.
Further, the company’s operating and net losses declined by more than 60% year-over-year. Nio has undergone several measures to raise capital — including a secondary offering here in the U.S., as well as from strategic investments in China — and just introduced a new vehicle, the EC6.
Launched on July 24, Nio should begin deliveries of the new vehicle in September. In short, Nio stock has a ton of momentum in its business and we’re seeing that in its stock price, too.
Trading Nio Stock
Unfortunately, we’re getting the price action we feared in Nio stock. While shares were up more than 8% and flirting with a possible rotation up to new highs, the stock is now down more than 6% on Tuesday as of this writing. It’s been a bumpy ride.
What information can we glean from the charts?
Above is a weekly chart, and even though the action is not what bulls were hoping for, not all hope is lost. Shares continue to find resistance in the $15 to $16 area. However, Nio stock also continues to put in a series of higher lows, allowing an uptrend support mark to form (blue line).
From here, bulls will want to see shares hold up above this trend mark and last week’s low. Below that low — at $12.46 — and a larger fade is possible. It will likely puts the 10-week moving average in play, which is currently near $10.75. If Nio stock closes below the July low at $10.46, it increases the odds that it will fill the gap down toward $9.38.
On the upside, it’s pretty simple: we want to see a close above $15. That puts the $16.44 all-time high in play, with more gains possible if it pushes above that. In that case, we’ll need to take another look.
Bottom Line on Nio
What’s the bottom line here? Nio delivered a strong report, in my view. There’s clearly momentum in vehicle production — which roughly tripled — and the financials are showing a huge improvement. The company plans to start rolling out a new vehicle this quarter, while management predicts deliveries of 11,000 to 11,500 vehicles in Q3.
Founder and CEO William Bin Li said, “The current constraints on the productions will be lifted in the near future and we are confident that our production capacity can meet the accelerated demand of our models.”
The company recorded its lowest-ever operating losses and generated positive operating cash flow in the quarter for the first time ever. I see this dip as more of a buying opportunity than a selling opportunity, but let’s not forget this stock is still up more than 500% from the March lows. It may need some time to digest the big rally.
See that the technicals hold up at the key levels outlined above. Otherwise, we need to exercise some patience with this one.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.