NIO stock is rising: should I buy now?

NIO stock has surged on news of the release of its new SUV. With the share price up, is now the time to buy? This Fool investigates.

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NIO (NYSE: NIO) stock popped last week, rising over 29%. The primary reason for this was the unveiling of its new ES7 EV SUV. While this is good news, the shares are still down 37% year-to-date, and 54% over the past 12 months.

So, with NIO back on the rise is now the time for me to buy some shares for my portfolio? Or should I steer clear of the Chinese EV powerhouse? Let’s investigate.

Why NIO stock is up

As mentioned, the primary reason for the shares rising was the announcement of the launch of its new SUV. It includes the latest autonomous driving technology from NIO and is the fastest SUV the company has ever produced, with a zero to 60 mph acceleration of just under four seconds. It also features the firm’s new battery swapping service. Investors reacted positively to the product’s unveiling, pushing the shares up over 16% after the announcement.

Just 11 days ago on 9 June, NIO released its 2022 Q1 results. Vehicle sales were up 24% year-on-year, with revenues rising by the same percentage. Losses also fell compared to the previous quarter, an encouraging move closer to profitability. However, NIO stock actually slumped on the announcement of this news, as vehicle margins shrank. CEO William Li attributed this fall in margins to “volatilities of supply chain and the challenges in vehicle delivery resulting from the recent Covid-19 resurgence”.

Not out of the woods yet

Although US-listed NIO shares are on the rise, there are still some risks ahead for the firm. Firstly, rising inflation could pose a big threat. It reached a 50-year high in May, hitting 8.6%. The way the US Federal Reserve is tackling these rising prices is by raising interest rates. On Wednesday, the Fed announced that it was hiking rates to a range of 1.5% to 1.75% in an effort to slow economic growth.

This is bad news for NIO as high interest rates tend to encourage investors to sell out of high-risk assets like growth stocks. This is because they can achieve higher risk-free returns. In addition to this, it has over $20bn in debt on its balance sheet, which could be magnified as rates increase. The stock fell 4.6% on the news, with the S&P 500 falling a slightly smaller 4%.

NIO also faces threats from Chinese regulators. The Chinese government has been placing tariffs on some of its largest companies since late 2020 in an effort to limit their power. This has resulted in the stock facing delisting concerns in the US. It has undertaken secondary listings in Hong Kong and Singapore to counter this issue, but it remains a threat.

The verdict

Overall, I think the positive reaction to the product unveiling will provide only a temporary boost for the shares. As inflation and interest continue to rise across the world, I think NIO stock could fall. Therefore, I won’t be buying right now.

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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