Will the NIO share price keep rising?

Having risen 30% in 30 days, the NIO share price seems to be on a bullish run. Dylan Hood wonders whether this momentum will continue.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The NIO (NYSE: NIO) share price had a standout 2020, rising nearly 1,200% for the year. However, this bull run was cut short in February 2021 as NIO stock plunged over 30% in value from its January high of $62. The share price seems to have regained some of its 2020 momentum though, having risen 30% in the past 30 days. Will this bullish run continue? Let’s take a closer look.

Tech sell-off engulfs NIO

The main reason for the fall in the NIO share price was that the stock was part of a larger tech sell-off. This saw the value of the Nasdaq composite – a tech-heavy index – fall by over 10%. The main reason behind this is the increasing bond yields that are fuelling higher inflationary expectations. If investors are expecting inflation, they sell bonds, which reduces their price but increases their yield. Higher bond yields, therefore, signify higher expected inflation. This threatens growth stocks like NIO as it erodes their future earnings and reduces their valuations. If bond yields continue to rise, it could seriously restrain the future growth of the NIO share price.

Another reason for the fall in the share price is the global semiconductor shortage. NIO is an electric car manufacturer and is therefore heavily reliant on semiconductors. With demand outweighing supply, NIO was forced to suspend production for five days between March 29 and April 2. The firm estimated this to have translated into an output loss of between 500 and 1,000 vehicles for the year. Some analysts are estimating the shortage to last up to two years. It’s therefore likely this will an ongoing problem for NIO’s production.

Reasons to be bullish

Although the above factors could limit the ongoing growth of the share price, there are still plenty of reasons why the bull run could continue. NIO’s 2021 Q1 results contained some seriously encouraging numbers that have no doubt led to investors snapping up more shares, pushing the share value higher. Deliveries were up almost 500% compared to Q1 2020, and gross profit was up 36.2% quarter-on-quarter. In addition to this, net losses were reported to be falling, signifying some movement towards profitability.

A 30% year-on-year increase in gross margins is another thing I picked up from the results. This is largely from customers opting for longer-range battery packs. The spare cash is being ploughed back into scaling up production and deliveries. This shows me the firm is really fitting that ‘growth stock’ picture, giving me optimism for a continuing rise in the share price.

Will the shares keep rising?

The NIO share price has certainly picked up some of its 2020 momentum. I think at present that solid moves forward in the company’s production and distribution are outweighing interest rate and semiconductor worries.

However, interest rates and semiconductor shortages are among some of the problems that NIO must effectively manage moving forward. The management of these problems will affect how the share price progresses. As a current investor myself I am confident the firm will overcome these hurdles and the shares will continue to creep upwards.

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.

Dylan Hood owns shares in NIO. 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.

More on Investing Articles

Businessman hand flipping wooden block cube from 2024 to 2025 on coins
Investing Articles

£10,000 invested in Legal & General shares 10 years ago is now worth…

Legal & General shares have delivered a positive-if-unspectacular return over the last 10 years. Could things be about to improve?

Read more »

Golden hand holding Number 2 foil balloon.
Investing Articles

2 high-quality growth stocks to consider buying in May

A 15% drop in the Amazon share price has put it on Stephen Wright’s radar. But what other growth stocks…

Read more »

ISA Individual Savings Account
Investing Articles

Thinking about a Stocks and Shares ISA in 2025? Avoid this 1 big mistake

The new Stocks and Shares ISA year is off to a shaky start thanks to tariff wars and financial turbulence.…

Read more »

Close-up image depicting a woman in her 70s taking British bank notes from her colourful leather wallet.
Investing Articles

£20,000 in savings? Here’s how an investor can generate a ton of passive income

Forget passive income schemes that require a lot of time and energy. Our writer thinks the stock market offers the…

Read more »

piggy bank, searching with binoculars
Investing Articles

How much should a 30-year-old put in a Stocks & Shares ISA to earn £2k of monthly passive income by retirement

At 30, a lot more of us are starting to think about our retirement plans. Dr James Fox tells us…

Read more »

Cropped shot of an affectionate young couple posing with a bunch of flowers in their kitchen on their anniversary
Investing Articles

£10,000 invested in Meta stock on Valentine’s Day is now worth…

Is Meta stock worth considering for a Stocks and Shares ISA portfolio today? Ben McPoland takes a closer look at…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

There’s one thing stopping me from buying Aviva shares today

Harvey Jones thinks Aviva shares are worth considering for investors looking to generate income and growth. Only one thing stops…

Read more »

Amazon Go's first store
Investing Articles

I bought this growth stock instead of Amazon in April 2020! Was that wise?

This writer opted to buy another e-commerce stock over Amazon five years ago during the global pandemic. But what about…

Read more »