NIO (NIO  ) reported Q2 results that topped expectations on the top and bottom-line and for vehicle deliveries. However, shares slid lower as the company's margins compressed. Investors had been hoping that increased production would lead to lower per-unit costs.

Overall, NIO shares are down 42% from their high set earlier this year. There has been some weakness in the EV sector following last year's massive gains, risk-off behavior in Chinese stocks amid the country's crackdown, and underperformance in speculative, growth stocks.

Inside the Numbers

In Q2, NIO reported a loss of $0.03 per share which was better than expectations of $0.11 loss per share and a slight improvement from Q1's per-share loss of $0.04. In 2020's Q2, the company reported a loss of $0.18 per share.

Revenue increased by 127% compared to last year, reaching $1.3 billion. This was slightly higher than analysts' forecast of $1.29 billion. Of this revenue, 94% came from vehicle sales. Vehicle margins came in at 20.3% which was lower than last quarter's 21.2% margin. However, it remains much higher than 2020's Q2 margin of 9.7%.

The company delivered 21,896 vehicles in Q2, a slight increase from 20,060 vehicles delivered in Q1. The company attributed the slowdown to supply chain challenges. The company said it's looking to expand its network of suppliers to alleviate these issues.

The company also said it remains on track to launch three new vehicles in 2022. It also is looking to expand into European markets like Norway, Germany, and the U.K. as well as setting up European headquarters.

In terms of its outlook, NIO expects between 23,000 and 25,000 deliveries in Q3. It also expects Q3 revenue between $1.38 billion and $1.49 billion. Both figures were slightly higher than forecasts.

Stock Price Outlook

Despite the correction in NIO's price and its growth over the past year, shares remain expensive by nearly every metric. It also explains why they had such a negative reaction to a slight compression in margins which the company believes is due to temporary factors.

It remains one of the leading EV companies in China and is just beginning to expand into other countries. Margins will likely continue expanding if it can keep increasing production and once these, short-term supply chain issues are resolved. So, it's understandable that some investors would be eager to buy the dip.

However, the stock price may already reflect these positives. NIO is probably a better trading vehicle than investment option at this point.