Is the current NIO share price an opportunity?

The NIO share price is has recently recovered form a blip so is NIO stock currently an opportunity or one to avoid? Jabran Khan investigates.

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Electric vehicle manufacturer NIO (NYSE:NIO) has had an interesting few months. The NIO share price has experienced quite a roller-coaster ride this year so should I consider adding NIO stock to my portfolio

NIO share price slumps

Rewind to February 10 and the stock had just reached highs of $64 per share. As I write, the NIO share price has reached $45 for the first time in approximately two months. Prior to this price and shortly after it’s February high, the stock dropped as low as $30 per share. 

NIO stock has been affected by the ongoing semiconductor shortage globally. Semiconductors are essential parts in the manufacture of electric vehicles (EVs). This shortage is affecting other EV firms out there too, of course. Specifically to NIO however, the shortage means it has been unable to ramp up production.

Its vehicle deliveries for Q1 2021 increased by over 400% year-on-year. And its Q2 forecast of vehicles delivered is current between 21,000 and 22,000. Although this is double what was delivered in Q2 2020, it is only growth of 5%-10%, which is well below market and investor expectations. This forecast wouldn’t have helped the dwindling NIO share price. 

Upturn in fortunes

In the middle of May, NIO stock saw a turning point whereby the share price slump began to turn around. From $31 per share, it has risen over 40% to the current level of $45 I mentioned earlier. I believe this rise was due to the publication of data by the China Passenger Car Association.

This data laid bare some issues NIO’s competitor Tesla was having with vehicle sales. As a result of this, NIO became the best-selling EV brand for SUV’s in China in the past month. With the sale of over 7,000 vehicles, its market share was close to 25% in China. This prompted the NIO share price to rise once more towards current levels and recover from its mini-blip.

Should I buy NIO stock or not?

There are things I like about NIO. Firstly, production has increased consistently. This is likely to continue due to the opening of a new factory. Next, it has a large product range and is attempting to offer innovation its competitors cannot yet, such as battery swapping. This is something that not even Tesla has and should give NIO a unique selling point. Finally, it continues to expand into new territories. Most recently it launched in Norway. Such expansion and growth should boost the NIO share price, in my opinion.

There are risks too, however. Firstly, the global semiconductor shortage has impacted NIO’s production before. Worryingly for me, it cannot control this shortage, which means it remains susceptible to further production issues. The other issue I have is NIO’s valuation. I believe it may be a bit bloated. Its market cap is $58bn, but in 2020, it only generated revenues of $16bn. I feel NIO’s value is linked to its growth potential and not its performance. Any losses or setbacks could be harmful.

I would not buy NIO stock just now. The bloated valuation and the fact it is at mercy to the semiconductor shortage put me off adding it to my portfolio. I admit it possesses a lot of growth potential, with the rise in demand for electric vehicles worldwide. Fow now, I will keep an eye on the share price and future developments. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jabran Khan 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.

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