In the roller-coaster world of electric vehicle (EV) stocks, few rides have been as thrilling – or as nauseating – as NIO (NYSE: NIO). The Chinese EV maker has seen its fair share of ups and downs, but recent movements have investors wondering: Is NIO finally shifting into high gear?

Recent rally

NIO’s stock has been on quite a ride lately. Over the past month, the shares have surged an impressive 32%, outpacing many of its EV peers and leaving investors scrambling to understand what’s powering this sudden acceleration.

This share price rally comes after a prolonged period of decline, from lofty heights of over $60 in early 2021 to a more modest $5.40 as of the latest close. But what’s fuelling this recent uptick?

One of the key factors is improving delivery numbers. The company has been consistently beating its own estimates, with August deliveries reaching a record high of 19,329 vehicles, representing an 81% year-on-year increase. This growth trajectory has investors excited about the potential to capture a larger share of the booming Chinese EV market.

Moreover, management isn’t just content with dominating home turf. The company has been making significant strides in its international expansion efforts, with a growing presence in Europe and plans to enter more markets. This global ambition could open up new revenue streams and help diversify the company’s market risks.

NIO’s focus on innovation is another factor driving investor enthusiasm. Recent announcements about advancements in battery technology and autonomous driving capabilities suggest that NIO is positioning itself at the cutting edge of the EV revolution.

Challenges ahead

The recent rally is certainly encouraging. Annual revenue is expected to grow by about 20% for the next few years, but it’s important to remember that NIO’s journey to recovery is far from a smooth ride. The EV market in China is becoming increasingly competitive, with both domestic and international players vying for market share. Established automakers and new EV startups are all fighting for a piece of the pie, which could put pressure on NIO’s margins and market position.

Economic difficulties in China, including concerns about a property crisis and slowing growth, cast a shadow over the entire automotive sector. These macroeconomic factors could impact consumer spending on big-ticket items like cars, potentially affecting sales.

Perhaps most critically, despite its impressive revenue growth, the firm is still not profitable. The company reported a net loss of 2.75bn yuan in the second quarter of 2024. Investors will be closely watching to see if management can translate its growing sales into bottom-line profits.

Foolish takeaway

NIO’s recent rally is certainly exciting, but as with any investment in the volatile EV sector, it’s important to approach with caution. While the company has shown impressive growth in deliveries and is making strides in international expansion, significant challenges remain in terms of profitability and increasing competition.

For the Foolish investor, NIO presents an intriguing opportunity with significant potential growth if the company can continue its growth trajectory and move towards profitability. However, it’s crucial to remember that this stock comes with a hefty dose of risk and volatility.

So, while NIO’s recent performance suggests it might be moving towards recovery mode, only time will tell if this can be sustained over the long term. I’ll be keeping my distance for now though.