Is NIO stock about to explode?

After a disappointing last 12 months, NIO stock is back on the rise. Dylan Hood wonders whether now is the time to add this stock to his portfolio.

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Since mid-April, NIO (NYSE: NIO) stock has been on a rampage. After reaching a yearly low of $12, the stock has climbed 77%, currently sitting at $22. While this still marks a disappointing year-to-date drop of 32%, things seem like they could be on the up for the Chinese EV manufacturer.

Expanding the time horizon to 12 months, NIO shares are down an equally disappointing 51%. However, I think this could offer me the chance to grab some cheap shares for long-term growth. I’ll explain why below.

The story so far

In 2020, NIO stock exploded in value, along with many other growth stocks. However, this momentum stalled at the start of 2021. And throughout the first six months of 2022, rising inflation and interest rates have weighed down on NIO shares. Rising interest rates put pressure on growth stock valuations, as people can earn higher risk-free returns on safe assets.

Looking to the future, it seems that rates will continue to rise throughout 2022 and beyond. In fact, investment bank Goldman Sachs has indicated it expects another five rate hikes in the US throughout the remainder of 2022. If this is the case, NIO stock could struggle to maintain its momentum.    

Another reason why NIO shares have struggled (and could continue to do so) is the Chinese regulatory authorities. The Chinese government has been imposing tariffs on Chinese companies listed in the US, in an effort to curb their power. This has sparked delisting fears for NIO, which has prompted it to undertake secondary listings in Hong Kong and Singapore to mitigate the risk.

However, it seems that the worst of these regulatory threats are in the past, and Beijing is doing all it can to encourage Chinese EV firms. It recently announced it would be extending subsidies for customers who buy domestically made electric vehicles. This announcement, made on Friday, pushed NIO shares 8% higher.

Is now the time to buy?

I find it hard not to notice NIO’s consistently high growth, which increases nearly every month. For example, in June, it delivered 12,961 vehicles, a 14.4% year-on-year increase. For the three months, ending June, deliveries rose by over 14% compared to the year before.

NIO also boasts some market-leading technology. Its new ET7 sedan has a range of 1000km, which far outshines EV world leader Tesla. Also, it has a unique battery swap system, which allows batteries to be swapped in just a few minutes at its own charging stations.

The verdict

I think the stock could be a great addition to my portfolio at the current price. Yes, there are prevalent macroeconomic risks that could hold back its growth, however, I think that in the long run, its unique tech and high growth will counteract this risk. Therefore, I think that over the next few years, NIO stock could ‘explode’ in value, and I would be happy to add it to my portfolio at the current price.

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 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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