Chinese electric vehicle manufacturer NIO (NYSE: NIO) has made a name for itself over the past few years. The business came to prominence in 2020, rising over 1,100% during this period. However, the last 12 months have been more humbling for the stock, as it has plummeted 55%.
The NIO share price dropped as low as $12 in the past year. But with it currently sat at $19, is now the time to buy?
The year so far
One reason NIO has seen a fall is because of red hot inflation. Higher rates have a bad impact on the value of future earnings. And to add to this, growth stocks, a group of which NIO is a prominent member, also take a hit during volatile periods like now. This is because investors shy away from high-risk investments in search of safer places to store their cash.
Spiking inflation also leads to higher interest rates, as central banks look for ways to control the blaze. For a stock like NIO, which borrows heavily to fuel growth, this is also bad news as this debt becomes more expensive.
More specifically, the business has also seen its operations hit by supply chain issues. As China continues to grapple with Covid, NIO has seen its production come to a halt for periods this year. This will more than likely have a negative impact on NIO’s sales figures for 2022.
While the firm has faced multiple pressures year-to-date, there are other factors to consider.
One of these, which is difficult to ignore when considering buying NIO shares, is its impressive growth. 2021 saw revenues increasing 122% year-on-year. And even in 2022, despite the issues mentioned above, the business has managed to post fairly strong delivery figures. As a potential buyer, this is encouraging.
However, one issue for me is competition.
This doesn’t only apply to NIO, but to all EV manufacturers. And while I believe there are plenty of opportunities within the sector, as this space continues to grow, competition will naturally heat up.
This can be seen through established manufacturer Volkswagen, which has already made headway in the industry. While Ford has also pledged a commitment to be all-electric by the end of the decade.
As governments worldwide make larger pushes towards an electric world, this competition will only become fiercer. As a result, NIO may struggle to maintain its impressive growth. There’s little doubt this would mean its share price suffering.
With this said, NIO may sustain a competitive advantage through its battery-swapping technology. The firm describes it as a “fully-automatic battery swap in just a short coffee break,” as the technology allows users to swap out their empty battery for a fresh one in the space of minutes.
Would I buy?
NIO’s growth is incredibly impressive. And with its cutting-edge technology, it may be able to stay ahead of competitors. However, I won’t be buying the stock today. Increasing competition worries me. And with concerns surrounding the Chinese economy at the moment, I don’t think now is the time to for me to dive in.
I’ll be keeping NIO on my watchlist for now. Should its share price fall in the months ahead, I may be tempted to open a small position.