NIO shares are on the rise: should I buy now?

I think NIO could be one of the leading EV makers. As a long-time holder, its growth excites me. But would I buy more today?

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NIO (NYSE: NIO) shares are on the rise again. Yesterday they climbed higher, finishing the day at just over $22. The rising share price seems to be restoring some investor optimism, which is good news for me as I have held NIO shares for some time now. That being said, the shares are still down over 33% year-to-date and 41% over the past year. So, is now the right time for me to load up on more NIO stock? Or should I steer clear of the Chinese EV giant? Let’s investigate.

Bull case for NIO shares

As I have mentioned in all of my NIO articles, the thing that excites me most about the firm is its high growth. In its January and February 2022 delivery updates, NIO announced that its deliveries had climbed 33% and 10% year-on-year respectively.

In addition to this, just last week NIO released its Q4 and 2021 full-year results. Vehicle deliveries were up 109% compared to 2020, and Q4 vehicle deliveries rose 44% on the year. Although NIO is loss-making, its Q4 gross profit also rose 48%.

As an investor, all of these metrics fill me with confidence. If the firm can continue to deliver results such as these over the coming years, then I expect the shares to rise.

Not out of the woods yet

Although the firm has delivered excellent results, there are still some big risks I see in the near future. The biggest of these risks is rising interest rates. Since the tail end of the pandemic, inflation has been rising across the globe. This is mainly due to fiscal stimuli enacted by central banks during the pandemic, coupled with supply chain problems. The way that central banks tackle this issue is by raising interest rates to slow the economy’s growth. When rates rise, high-growth shares like NIO take a hit.

Earlier this month, the Federal Reserve raised US interest rates to 0.75%. As explained above, this is bad news for NIO shares. What’s more, global investment bank Goldman Sachs has announced it believes the Fed could hike rates another six times throughout 2022.

In addition to this uncertain macro-outlook, NIO has been struggling with supply shortages. In the Q4 earnings call, CEO William Li highlighted that chip shortage “will affect our production this year”. NIO currently uses around 1,000 chips per vehicle, of which 100 are estimated to face a shortage. This issue could dampen the growth of the firm, which I expect would be reflected by a stagnating share price.  

The verdict

I think NIO has the potential to be one of the leading electric vehicle manufacturers. As a long-time holder, the high growth really does excite me. However, in the short-to-medium term, I think there are too many potential risks for me to consider buying more shares. As such, I won’t be adding to my holding today.

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 has no position in any of the shares mentioned. The Motley Fool UK has 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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