NIO (LSE: NIO) stock climbed last week, rising just under 7%. The main reason for this was some bullish electric vehicle (EV) coverage by Macquarie analyst Erica Chen. Essentially, she said that she believed investors should be buying EV stocks. She also assigned a price target of $37 for NIO stock, which is over 20% higher than its current trading levels. Investors seemed to have heeded this message, pushing the shares to over $30 at the close of the week.
In addition to this, NIO’s corporate communications chief released a statement highlighting the $69,700 average sale price for December. Only Mercedes Benz had a higher average price than this in China, highlighting NIO’s presence in the market.
Where next?
Chen also shared her belief that the EV manufacturer’s sales would grow at roughly 50% annually for the next few years. NIO sold 91,429 vehicles in 2021, up 109% year-on-year. For context, Tesla sold just under one million vehicles in 2021. Growing at 50%, it would take NIO six years to reach such numbers, which seems encouraging to me.
NIO has proven itself to be capable of fast growth too. For example, 2021 Q3 deliveries rose 100% year-on-year, reaching 24,439. The fact that the firm has been able to deliver these high-growth numbers gives me confidence that it will deliver more growth moving forward.
Headwinds for NIO stock
The biggest risk I see for NIO stock in the short term is the continuing threat of covid-19. Causing huge supply chain issues, it has continually hindered NIO’s performance. For example, in October, deliveries fell 65% due to supply problems. With new variants increasingly cropping up, this could place a lid on its growth moving forward.
Medium term, I think that the current macroeconomic environment could put pressure on NIO stock. Fiscal stimulus — used by governments to ease the pandemic’s economic effects — has created a wave of high inflation, which central banks are now combatting by raising interest rates. When this happens, equities are usually pressured, with growth stocks like NIO being hit the hardest.
Over the long term, competition is likely to be a risk too. Ford and General Motors are just some of the household vehicle names that are pouring billions into EV production. NIO will have to fight off these better-equipped, more established firms if it wants to retain its presence in the market.
The verdict
Overall, I think that the current price level could offer a great entry point to add more NIO shares to my portfolio. The fact that top-level analysts are reiterating this message also gives me confidence. There are headwinds that it needs to overcome, but for me, the explosive growth and current low share price outweigh these. As such, I would consider buying more stock for my portfolio today.
