NIO (NIO  ) shares were flat, following its Q2 earnings, despite a wider loss than expected which the company attributed to COVID-related shutdowns in China which hampered vehicle production. Overall, shares are up nearly 100% from their May lows, however, they remain more than 70% lower from the peak in January 2021.

The company is facing an interesting mix of tailwinds and headwinds. It remains one of the leading EV companies in China, especially in the luxury segment, and is focused on international expansion. However, there is an unquantifiable risk when it comes to Chinese stocks due to the possibility of a war with Taiwan which would naturally bring severe consequences to its economy.

Additionally, the EV market is going to boom which also will mean more competition for sellers and higher prices for inputs like commodities, materials, parts, and labor.

Inside the Numbers

In Q2, Nio had an adjusted loss per share of $0.13 which was slightly worse than analysts' expectations and a bigger loss than the previous quarter when it lost $0.04 per share. Revenue came in at $1.56 billion which was 24% higher than last year's Q1.

Like Tesla (TSLA  ), the company is a rarity in the auto world as it has too much demand relative to its production capacity. However, the company has struggled with increasing production, especially amid the lockdowns in China, higher input costs, and supply chain challenges. This is best reflected in the company's gross margin falling to 14.6% from 19.5% last year and 17.2% in the previous quarter.

One of the tenants of the bull case in NIO and other upstart EVs is that gross margins will improve as production volumes expand. The company attributed most of the weakness in margins to higher commodity prices, and there has certainly been some relief (in part due to weakening Chinese demand). However, the company is focusing on cutting costs and sees margins starting to expand next quarter.

Its newest factory has also begun pre-production work on the upcoming ET5 sedan and plans to launch a new SUV, the ES7 with deliveries beginning in August. In the current quarter, it delivered 25,768 vehicles, 20% better than last quarter. It's also playing catch-up as production was down due to shutdowns but has sharply recovered at the end of the quarter.