The NIO (NYSE: NIO) share price seems to have lost its momentum. In February the stock reached an all-time high of $63, up from $3 just a year earlier. Shares in the Chinese electric vehicle (EV) manufacturer have since fallen to $40. With the EV market having such a promising future, is it worth buying into the dip in the NIO share price? Let’s take a look.
The bull case for NIO
Looking at the latest report from the firm shows me some encouraging numbers. Vehicle sales totalled $1.2bn for Q2 2021. This was up 6.8% from the previous quarter, and 127% compared to Q2 2020. The vehicle margin also increased over 10% since Q2 2020 which shows me the firm is expanding operations effectively. NIO is still a loss-making company, however, the net loss of $90m from Q2 this year being down 30% from the previous quarter and 50% from a year ago.
When I last covered the NIO share price in June, the firm’s results were similar. And the fact that the company is consistently expanding gives me confidence in its future growth. Moving forward, this consistency is what I think should make it stand out in the competitive EV market.
In May, it announced it would be expanding into the European market, starting with Norway. Charging equipment is currently being deployed as the firm’s ES8 SUV was approved for mass production across the continent. In addition to this, there are rumours that Germany will be the next expansion target, after a ‘General Manager of NIO Germany’ job was posted online. Its global design centre already operates out of Munich, so this seems feasible. If successful, I expect this expansion to be mirrored in a rising NIO share price.
The bear case for the stock
The EV market is becoming fiercely competitive. Big names like Ford and General Motors have set aside billions of dollars for EV R&D over the next few years. Bigger firms with better margins and more established infrastructure will be hard to compete with and the company will have to fight to maintain any market share.
In addition to this, the global semiconductor shortage is still posing problems for the wider EV market. The shortage has already affected the firm, as it had to pause production between March and April this year, leading to a loss of 1,000 vehicles (around $60m). It must compete against much bigger firms to maintain chip supply if it wants to continue its strong growth.
I think the current NIO share price dip could be a buying opportunity. Although the firm does have challenges it must face moving forward, I feel it’s impossible to ignore the strong, consistent growth of the firm. As a current investor, I am monitoring the short-term movements and considering topping up my portfolio with additional shares.
