NIO stock is down 50%! Is it time to buy?

After its rise in 2020, NIO stock is down 50% year-to-date, in this article this Fool assesses whether now’s the time to buy.

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Back view of blue NIO EP9 electric vehicle

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NIO (NYSE: NIO) stock made a name for itself in 2020. Rising a meteoric 1,400% during this time, since then momentum has slowed. 2022 has seen the share price drop 50%. While the last 12 months have seen over 60% shaved off its share price.

So, does this fall present an opportunity for me? And is it time for me to be adding NIO stock to my portfolio? Let’s take a look.

Why is NIO stock down?

There are multiple reasons why NIO has taken a hit. One of these is the combination of rising inflation along with spiking interest rates. While higher inflation impacts the value of future earnings, rising interest rates make borrowing money and paying off debts more difficult. For a growth stock such as NIO, this spells bad news.

As well as this, the firm has also struggled with supply chain issues. In April the firm announced the suspension of vehicle production due to rising Covid cases in China. While the business was relatively quick to begin production again, I’d expect the suspension to negatively reflect on NIO’s revenues this year.

Is it time to buy?

While NIO is facing some issues, there are still reasons to be bullish on the firm.

For example, it has seen impressive growth over the last few years. In 2021, revenues increased 122% year-on-year. And while it has struggled this year, it clearly still has growth potential. When considering buying shares, growth like this is hard to ignore.

The company also trades on a price-to-sales (P/S) ratio of just 4.84, which looks cheap. For comparison, competitor Tesla currently trades on a P/S ratio of 12.12.

However, a concern for me that I have with all-electric vehicle stocks is competition. As this space continues to expand, NIO may struggle to retain its market position. For example, competitors like Ford have already made headway in the EV sector. And with its pledge to be all-electric by 2030, along with its $1 billion Cologne site transformation, NIO may struggle to keep up with more established businesses. Should this be the case, we would most certainly see a drop in the NIO share price.

Another threat to NIO comes in the form of delisting. With the real threat of the stock being removed from the US exchange due to pressure from within China, I think we could see the share price continue to fall as a result.

So, while NIO offers potential through its strong growth, there are too many concerns for me to deem the stock a buy for my portfolio. I think worsening economic conditions will continue to mean the stock suffers. And as more competitors venture into the EV space, it may see its market share negatively impacted. Although the stock is trading considerably lower than it has in recent years, I won’t be buying shares 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.

Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. 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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