NIO (NYSE: NIO) stock has underperformed in 2021. Dragged down by the tech sell-off and concerns over the global semiconductor shortage, the electric vehicle (EV) stock has fallen from $49 to $40 – a decline of nearly 20%. Over a year however, it’s still up around 1,200%.
Should I buy NIO stock now, after this significant share price pullback? Let’s take a look at the investment case.
NIO: strong growth in Q1
NIO’s latest trading update, posted on 1 April, showed that the company continues to grow at a rapid rate. In March, the group delivered 7,257 vehicles (a new monthly record), an increase of 373% year-over-year. Meanwhile, for the first three months of the year, NIO delivered 20,060 vehicles, an increase of 423% on a year ago. As of 31 March, cumulative deliveries of its ES8, ES6, and EC6 cars was 95,701 vehicles.
Looking ahead, analysts expect NIO to keep generating strong growth, despite the global chip shortage which is causing disruption for many car manufacturers.
For example, Mizuho analyst Vijay Rakesh – who has a $60 price target on the stock – forecasts sales to roughly double in 2021. He expects NIO to achieve 87,000 EV deliveries this year (versus 43,728 in 2020), 141,000 deliveries in 2022, and 223,000 in 2023. Rakesh also believes NIO’s leading position in battery swap stations in China will help boost growth.
NIO’s recent growth, and the forecasts for 2021 and beyond, are certainly encouraging.
NIO stock: my concerns
I continue to have two main concerns over NIO stock though. One is in relation to the intense amount of competition the company is now facing. Right now, competition in the premium EV space is really heating up.
Porsche, for example, has its Taycan model, which was introduced to China last year. This is proving to be very popular globally, with sales nearly matching those of the iconic 911.
Meanwhile, Ford has its Mustang Mach-E. In January, the company announced it plans to start producing this EV in China later this year.
It’s also worth mentioning Chinese automaker BYD, which is backed by billionaire investor Warren Buffett, sold 16,301 units in China in March – more than twice the number of cars NIO delivered.
Clearly, NIO has a lot of competition, which isn’t ideal from an investment point of view. Can it protect its market share?
My other concern is around the valuation. This is still very high even after the recent share price pullback. Currently, NIO sports a market capitalisation of $65bn. That’s about 40% of the market capitalisation of automotive powerhouse Volkswagen (€133bn).
Last year though, Volkswagen delivered 231,600 EVs – more than five times the number NIO delivered – and 9.3m cars in total. When you look at it like that, NIO stock looks very expensive.
My move now
Weighing everything up, I’m happy to give NIO stock a miss right now. I think there are other growth stocks that are a much better fit for my portfolio at present.
Edward Sheldon has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended NIO Inc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.