What’s going on with the NIO share price?

Jon Smith notes the short-term jump of almost 50% in the NIO share price over the past week-and-a-half, but cites some longer-term concerns.

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Blue NIO sports car in Oslo showroom

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Over the past year, the NIO (NYSE:NIO) share price has halved. Yet over the past month, the shares have been even more volatile than usual. For example, at the start of last week, the share price was around $14. It’s now at $21.66, a gain of almost 55%. Here’s what’s been going on, and what I think it could mean for the rest of this year.

Reasons for the short-term pop

Over the past few weeks, there have been a few reasons why the NIO share price has been volatile (but ultimately finishing higher). Firstly, it was helped by the news that the Chinese government will support stock listings abroad. This comes as complete about-turn from the state that had seemed unimpressed for much of the past year by large companies listing outside of Hong Kong. Particularly when it came to the US, tensions ran high. Although they haven’t been completely done away with, the easing of the stance helped most of the large Chinese stocks to rally on better sentiment.

Another reason for optimism was the February delivery report. NIO delivered 6,131 vehicles in February, increasing by 9.9% year-on-year. As for total fiscal year-to-date deliveries, this was 15,783 vehicles in 2022, increasing by 23.3% year-on-year. 

A key area that investors look at is those deliveries. After all, EV companies need to reach scale from production in order to stand any chance of becoming profitable in the long run.

Finally, there’s speculation about the release of a new model that could drop in the coming weeks. For the moment these appear to just be rumors. But as we all well know, stocks can rise and fall based on a single headline, regardless of whether it’s true or not.

Longer-term issues for the NIO share price

Despite the positive bump recently, there are issues that could prevent the share price from reaching the heady heights of $50+ seen last June. The one that most concerns me is the supply chain issue. It’s known that the car sector as a whole is facing a shortage of components and chips that are causing delivery delays around the world.

I don’t think this is going to be resolved any time soon. Although the February delivery numbers were up year-on-year, they were the lowest in the past four months. Therefore, this could be a sign that supply issues are reducing the ability of NIO to get cars on the road.

Another point I’m cautious about is the high cost of lithium, a key part of the electric batteries. Lithium has almost doubled in price since the start of 2022. I think it’s only a matter of time before the overall price for a car increases due to this. This might dampen demand from consumers, depending on how much prices go up. 

Overall, the NIO share price has gained recently from short-term optimism. However, issues could hamper further gains in my opinion, so I’m going to stay on the sidelines for the moment.

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.

Jon Smith and The Motley Fool UK have no position in any of the shares mentioned. 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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