NIO (NYSE: NIO) has had a strong last 12 months, with its share price increasing 950% in this period. However, the last three months has seen a sharp decline, with it currently sat at around $35.
Although the NIO share price has plunged, here I am going to explain why I still see the stock as a good long-term addition to my portfolio.
NIO positives
It is a well-known fact that demand for electric vehicles has rocketed over the course of the last year. A 2020 Deloitte report estimated that electric vehicle sales would reach 31.1m by 2030 – a considerately larger amount than the 3m sold in 2020, showing the potential market companies such as NIO have access to. This is seen through NIO delivery numbers, which for Q1 of this year were up 423% to just over 20,000 vehicles.
The growing Chinese market also adds to the attractiveness of NIO stock, with China accounting for 41% of global electric vehicle sales in 2020. The inevitable future demand both domestically and internationally is one of the main reasons as to why I currently see real value in the NIO share price.
To add to this, I have been wary in the past of the fact NIO has been operating at a loss. However, Q1 2020 saw net losses drop to just $54m – a sign that provides me with optimism for NIO shares.
NIO doubts
With this said, there are factors that fill me with doubt about adding NIO to my portfolio. Firstly, the current dip in the NIO share price is partly due to a worldwide semiconductor shortage. The problem arose at the outbreak of the pandemic last year. The earlier-than-expected reopening of many factories has led to a surge in demand in the chips, outweighing the supply. This has led to NIO having to suspend production for periods of time. This issue highlights the fragility of the NIO production line and the issues this could bode in the future – something that I believe could have a major negative impact on the NIO share price.
Along with this, the tech sell-off we have seen in recent months, as detailed by Dylan Hood in his latest article on NIO, may provide issues for the electric vehicle producer.
Finally, regardless of the dip, I must question the valuation of the NIO share price. NIO has a market capitalisation of around $57bn, whereas an established competitor such as Ford is worth just $47bn. Ford sold 4.2m cars in 2020 and itself is expanding into the electric vehicle sector.
My verdict
Although at this current time there may be multiple issues that surround NIO, I see real potential in the stock. The expanding market is sure to cause a surge in demand and could be boosted by government legislation. Short-term issues may cause doubt, but from a long-term perspective I see vast opportunities in the current NIO share price. With the Tesla share price currently sat well over $600, I must ask myself whether NIO could emulate this in years to come.
