NIO (NIO  ) shares were mostly unchanged following its Q1 results as the company missed on the bottom-line but exceeded revenue estimates. It also slightly missed on estimates for vehicle deliveries.

Between March 2020 until early January, NIO had been one of the best-performing stocks in the market. Some of the catalysts were the strength in the electric vehicle (EV) sector, the company's new vehicles were popular in the Chinese market, and its turnaround from near-bankruptcy. Since its January high, NIO is down by 40%.

Inside the Numbers

In Q1, Nio posted $1.2 billion in revenue. This was a 480% increase from last year's Q1 and a 12% increase from the last quarter. The company posted a net loss of $0.48 per share. This is an improvement from last year when the company lost much more money and a 36% increase from the last quarter.

Another closely watched metric is vehicle deliveries which exceeded 20,000 for the first time in its history. This is a significant improvement from Q1 2020 when it just had 3,833 deliveries and a 20% increase from Q4's 17,350 vehicles. However, the company fell short of analysts' expectations of 20,070 deliveries.

The company was also able to generate higher margins due to a higher average selling price and falling costs along with increasing production. Gross margins were 21% which is a big improvement from last year's margins of -7%.

The company said that demand remains strong for NIO with waitlists for certain vehicles. Nio has generated a cult following in China with many parallels to Tesla (TSLA  ), including many seeing the car as a status symbol. Like many auto companies, NIO has been adversely affected by the chip shortage which forced a 5day shutdown in one of its facilities in March.

Due to this factor, the company's forecast for 21,000 to 22,000 vehicle deliveries in Q2 fell short of expectations. This translates into revenue between $1.2 billion and $1.3 billion.

Stock Price Outlook

Nio currently has a market cap of $65 billion despite being projected to sell less than 100,000 cars this month. In order to justify this valuation, the company will have to successfully continue growing sales and increasing margins.

While NIO has a large market share, and the total market size will also keep expanding, there is no guarantee that it will be successful. Picking winners and losers is not easy. Legacy automakers will also fight for market share, thus as new models become available, it's likely there could be intense price wars to win market share. Further, NIO also has the difficult and expensive task of increasing production which will also drain resources. In comparison, the legacy companies already have this productive capacity and distribution channels that NIO will have to build from scratch.

For these reasons, investors should be cautious with NIO.