What a few months it has been for electrical automotive maker NIO (NYSE: NIO). NIO inventory has leapt 53% over the previous two months.

That’s the stuff of investor goals, though in equity it nonetheless leaves NIO 91% beneath its 2021 excessive.

From a long-term perspective, although, I’d additionally level to the five-year share price efficiency. Throughout that interval, NIO inventory is up 271%.

Right here I wish to dig into what has been occurring with the share price — and whether or not it might sign a turnaround for the share price that would justify shopping for NIO for my portfolio.

Large gross sales development

The important thing set off for the surge in NIO inventory, so far as I’m involved, was the quarterly outcomes assertion it launched final month.

Automobile deliveries through the quarter have been over 57,000. That represented 144% development in comparison with the identical interval the prior 12 months.

I see that as excellent news in two methods.

First, the expansion is spectacular. It means that NIO has established an more and more credible place with at the least some clients in what’s a aggressive market. Secondly, in absolute phrases, I feel the gross sales figures are respectable.

Positive, they’re a good distance behind rival Tesla. In its newest quarter, it delivered 463,000 autos. NIO’s deliveries have been underneath one-eighth of Tesla’s. However they nonetheless equated to over 4,000 autos per week on common. I see that as substantial.

I feel the gross sales volumes are vital – and assist clarify the current surge in NIO inventory – as a result of automotive manufacturing and distribution is a recreation of scale. There are giant mounted prices, so ramping up quantity is necessary for spreading these prices.

NIO has strengths – however weaknesses too

To this point, so good.

NIO is constructing a buyer base. It has confirmed that its autos, which aren’t low cost, can appeal to clients at scale. It additionally has plenty of aggressive benefits, together with its proprietary battery swapping expertise. I see that as resolving a key grievance many individuals have about rival electrical autos, particularly their restricted vary.

Nevertheless, it has but to show that it could actually flip that constructive gross sales momentum right into a revenue.

Sure, its internet loss in the latest quarter was 17% decrease than within the prior 12 months interval. However it nonetheless got here in at over half a billion kilos. That’s some huge cash, for my part.

To evaluate whether or not or not NIO inventory is attractively valued, I contemplate its long-term monetary outlook. However as I see it, a key piece of the puzzle continues to be lacking. NIO has but to show that it may be worthwhile, not to mention persistently so.

Tesla additionally made losses for a few years earlier than breaking into the black. The identical may but turn into the case for NIO. However it faces dangers together with a really aggressive market and an unsure geopolitical local weather that would hamper the Chinese language firm’s worldwide enlargement plans.

For now, given these dangers, I don’t plan to take a position.