This will be Nio’s next big step

It may be difficult for investors to get excited about a company that lost nearly $1.5 billion from its operations in the first half of this year. In fact, the Chinese electric vehicle manufacturer Nio (NYSE: NIO) has never made a profit.

That explains why the stock has lost more than 80% of its value over the past three years. But there was also some significant and positive news in Nio's quarterly report. That business momentum has translated to the stock price, with Nio's American Depositary Shares up more than 40% in the past month.

The company's market cap currently stands at about $11 billion, and the electric car maker ended the quarter with $5.7 billion in cash and equivalents. That makes now a good time to look at what Nio's next big move will be and whether it's a stock that belongs in your portfolio.

A step towards profit

One of Nio's most notable achievements in the second quarter was the significant increase in vehicle profit margin. Vehicle margin, which is based on revenue and cost of new car sales, was 12.2% in the quarter, compared to just 6.2% in the year-ago period. This was helped by revenue that nearly doubled year-over-year.

After years of ups and downs, Nio finally seems to be gaining momentum in vehicle production and sales growth. This comes as global competition in the electric vehicle sector increases. Nio has sold over 20,000 electric vehicles for the first time in four consecutive months. This has helped it gain market share and increase margins.

Data source: Nio. Chart by author.

The company just set a new quarterly record with more than 57,000 units delivered. It also provided guidance for third-quarter vehicle deliveries in a range of 61,000 to 63,000 electric vehicles. Nio CEO William Li noted that the company's second-quarter sales volume led it to capture more than 40% market share in China for electric vehicles priced above $42,000. And Nio has plans to expand further. Its focus on the luxury segment of the market has helped it compete against China's electric vehicle leader BYDwhich claims the lion's share of the Chinese market for cheaper electric vehicles.

Combating range anxiety

Nio is a leader in China and elsewhere in the development of battery charging systems and its unique battery swapping technology. Nio's battery swapping stations offer electric vehicle buyers the opportunity to reduce the cost of ownership by paying a monthly subscription to the Battery-as-a-Service (BaaS) plan. Drivers can use the swapping stations to replace dead batteries with freshly charged ones. The process takes just a few minutes.

Last month, Nio announced a new plan to strengthen its charging and battery-swapping network across China. Its “Power Up Counties” plan will accelerate the expansion of these networks.

As of August 31, Nio had more than 2,500 battery swapping stations worldwide, with over 800 of them strategically located along China's expressways. With over 577,000 Nio vehicles on the road, the company has completed more than 50 million battery swaps. The new plan calls for battery swapping stations to be available in thousands of Chinese counties by the end of next year, and plans to build a new factory to create up to 1,000 battery swapping stations annually.

Mass market brand

Nio's new brand Onvo will also take advantage of the growing charging and swapping networks. Onvo is Nio's new entry-level brand for electric vehicles that will tap into a mass market and Tesla's Model Y. The Onvo L60 mid-size SUV has a starting price of about $30,000.

That brand, combined with Nio's existing and growing charging technology and infrastructure, could be the next driver for Nio's business and stock. Investors willing to be aggressive could buy Nio stock now and anticipate the next phase of growth with Onvo. Otherwise, watch for signs that Onvo is gaining ground to be a little more conservative and still potentially get ahead of Nio's next big move.

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Howard Smith holds positions in BYD Company, Nio, and Tesla. The Motley Fool holds positions in BYD Company and Tesla and recommends these companies. The Motley Fool has a disclosure policy.