Why Nio Stock Jumped 42% in July

Key Points

• Nio is betting on its sub-brands Onvo and Firefly to drive growth.

• Early response to its Onvo L90 SUV has exceeded expectations.

• With Nio starting L90 deliveries, its sales should pick up pace.

• 10 stocks we like better than Nio ›

After a dismal first half of the year, Nio (NYSE: NIO) stock made a dramatic comeback in July and surged 42% in the month, according to data provided by S&P Global Market Intelligence.

Earlier in July, Nio reported a 17.5% year-over-year growth in deliveries for June. The Chinese electric-vehicle (EV) maker's recently launched sub-brands, Firefly and Onvo, contributed 40% to its June sales, and that's what caught everyone's attention.

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Although Nio launched its first Onvo model L60 late last year, its all-electric large three-row L90 SUV sparked unprecedented optimism last month. In the two weeks following the start of L90 pre-sales on July 10, Nio's stock shot up over 40% on the Hong Kong stock exchange. The optimism spilled over to the U.S., and Nio shares surged on the New York Stock Exchange as investors bet on a potential turnaround.

Image source: Getty Images.

Can Nio stock fly higher?

Nio's deliveries of 24,925 vehicles in June was its highest so far this year. However, the company's July delivery numbers are already in, and it delivered only 21,017 vehicles in the month. That explains why Nio stock is down about 8% in August, as of this writing.

Should investors be worried, though? I'd say no, because August should be a bigger month for Nio as it began deliveries of L90 on August 1.

A local media report stated that Onvo president Shen Fei has set an internal target of delivering over 10,000 units of L90 in August alone. If Nio hits that number, the Onvo L90 will achieve the highest monthly sales among all of Nio's models in the company's history. Nio is aggressively ramping up production of L90 to fulfill deliveries.

Meanwhile, Nio's other sub-brand Firefly, targeted to the mass market, is rapidly expanding overseas. Firefly launched its first namesake compact electric car in April this year to take on the BMW Mini and the Mercedes-Benz Smart. By the end of 2025, Nio expects Firefly to be available in 20 overseas markets, primarily across Europe.

Nio will also launch its next-generation ES8 SUV in the coming months, which management believes should drive its Nio brand sales to 25,000 units per month. If management's numbers fall in place, Nio could soon be selling over 35,000 cars every month.

Back in April, I believed Nio stock was incredibly cheap and a top value EV stock to buy. Given the company's push into mass markets and aggressive goals for L90, I see a lot more upside in the stock price.

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Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.