Why Nio Stock Is Exploding Ahead of Earnings

What happened

Nio(NIO7.45%)$NIO Inc.(NIO)$ stock bounced back sharply this morning and was surging as high as 8% as of 11:30 a.m. ET. A rival just made a huge growth move in the only international market Nio is targeting, but investors are placing big bets on Nio ahead of earnings and on speculation of the launch of a new car model in the coming weeks.

So what

Nio will report its fourth-quarter and full-year 2021 earnings on March 24 after market close. Thestock sank yesterdayafterDeutsche Bank analyst Edison Yu slashed his price target on Nio stock to $50 a share from $70 per share to factor in geopolitical and supply chain risks. Nio also faces thethreat of getting delistedfrom the U.S. stock exchange alongside other Chinese stocks.

Yu also expects Nio's gross margin to fall sequentially in the fourth quarter to around 17% in the wake of surging raw material prices, according to CnEvPost. Further, Yu expects Nio to deliver only around 25,000 vehicles in the first quarter, or similar to the fourth quarter.

Beyond the first quarter though, Yu expects Nio's deliveries to pick up from the second quarter and sees the company delivering 167,000 vehicles this year.

In short, even if Nio fails to impress investors on March 24 given the several macro challenges facing the company, that shouldn't hurt its long-term growth story. Investors seem to be taking note this morning and are buying Nio stock while it's still trading significantly below its 52-week high.

In fact, there's another big day lined up for Nio in March: It will start delivering its flagship ET7 sedan on March 28. Meanwhile, Nio is already taking reservations for its midsize ET5 sedan and looks set to unveil its five-seater ES7 SUV as early as April, according to CnEvPost. ES7 is expected to compete withBMW's X5L, the luxury car maker's upcoming SUV built for China.

Now what

Given the ongoing supply constraints, there's a chance Nio could fall short of analysts' top-line estimates for its fourth quarter. But don't forget that nearly every EV maker, including behemothTesla, is finding it hard to navigate the supply chain challenges.

Nio's delivery or revenue numbers, therefore, should matter less to investors right now. Instead, focus on whether Nio canexecute on its big 2022 plansincluding new model launches, the start of its second plant, and expansion into at least three European countries this year. The last one in particular is a must-watch move as just this morning, Tesla opened its Gigafactory in Berlin with a production capacity of 500,000 vehicles a year. To be sure, Nio is still new to the game, but it's considered Tesla's closest rival in China.