The NIO (NYSE: NIO) share price has been sliding this year. The sell-off has only accelerated in recent days. Over the past five days, shares in the company have fallen by around 15%. Year-to-date, the stock’s off 28%, although over the past 12 months, it’s added 175%.
Fatal crash
This week, shares in the electric vehicle (EV) company have been selling off after one of its vehicles crashed. Initial reports suggest that a prominent Chinese entrepreneur was killed using his NIO vehicle’s hands-free driving system.
This is the second fatal crash involving one of the group’s cars in recent weeks. And Chinese regulators are now starting to take note. On both occasions, drivers were using NIO’s hands-free driving system. It could be the case that this system is suffering teething problems, which regulators may well order the company to put right.
Such a development would be a setback for the group, but it may be relatively easy to rectify. What’s more, I don’t think investors and customers are buying into the company’s offer just for its assisted driving software. I believe its interchangeable battery-pack technology is far more appealing. In my opinion, this is where the real value lies.
As such, as the NIO share price has drifted lower, I’ve been wondering if the stock is becoming undervalued.
Is the NIO share price cheap?
I’ve looked at this company several times in the past. On each occasion, I’ve struggled to come up with a value for the business. NIO’s still losing money, and despite its potential, that makes it hard for me to value.
Further, recent actions by Chinese policymakers have made it challenging to evaluate Chinese equities in general. Last month, policymakers decided to ban education companies from charging students and that sent shares in these firms plunging more than 90%. Regulators have also attacked other organisations such as taxi operator DiDi, inflicting huge losses on investors.
The thing is, I don’t know where regulators will strike the next. They could go after NIO. If they do, there’s no telling how much of an impact this will have on the NIO share price.
Therefore, I don’t want to risk my hard-earned money on an investment with such an uncertain future. Instead, if I had to pick one EV company, I’d pick Tesla. This business is already far more established, and while it’s had its fair share of run-ins with regulators, there’s little-to-no chance regulators will close the business down overnight.
Overall, I do think NIO owns some valuable technology, and customers like its electric vehicles, but I believe the company’s outlook is just too uncertain. With this being the case, I wouldn’t buy the stock for my portfolio, even though it’s recently declined in value.
