NIO shares are falling: is it time to buy at $19?

Over the past five days, NIO stock has fallen over 7%. Dylan Hood digs deeper into why and wonders if now is the time to buy the shares.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Electric cars charging at a charging station

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

NIO (NYSE: NIO) seems to have been fighting an uphill battle so far in 2022. Supply disruptions, Chinese regulators, and Covid-19 restrictions have plagued the automobile manufacturer and as a consequence, its shares have fallen over 43% this year. Over the last 12 months, the shares have fallen an even greater 48%. So, currently sitting at $19, is now the time for me to add this Chinese EV stock to my portfolio? Or should I steer clear? Let’s investigate.

The lowdown

A major driver behind NIO’s poor share price performance has been the state of the macroeconomy. Inflation has been soaring across the globe, caused by a combination of Covid-19-related supply bottlenecks and soaring energy prices stemming from the tragic Russia-Ukraine conflict. Central banks across the globe have been hiking interest rates in an effort to curb this red-hot inflation. When rates rise, it weighs on growth stock valuations as investors shy away from speculative assets and pour money into safe ones. Evidently, this has been bad news for NIO.

Another threat the company has been battling is supply issues caused by a series of lockdowns in Shanghai. The lockdowns forced NIO — along with other Chinese-based EV companies like Li Auto and Xpeng — to slow down or even halt production. This resulted in a series of disappointing monthly delivery figures that seemed to have tipped investors’ sentiment away from the stock.

The firm has also been facing domestic pressure from Chinese regulators. The Chinese government aimed to curb the power of US-listed Chinese companies, and NIO has faced delisting fears as a consequence. The EV giant has undertaken secondary listings in Hong Kong and Singapore to mitigate this risk, but the threat has put serious pressure on the share price in recent months.

Electric results

In the company’s Q1 2022 results, it outlined some encouraging metrics. Year-on-year deliveries rose by 29%, with revenues climbing 24% to $1.5bn. In addition to this, the firm’s losses shrank 10% compared to the fourth quarter of 2021. This highlights the encouraging move towards profitability. In its full-year results for 2021, NIO outlined it had increased its sales by 118%, with revenues climbing a staggering 122% compared to the year prior. If it can continue this trajectory in 2022, then I think it could have a rosy stock exchange future.

A product-specific standout that entices me to buy the stock is its unique battery switching technology. Users can swap out their battery within minutes, making it super convenient. At present, NIO is the only manufacturer offering this service in the EV market. This edge could help the firm keep its market share in the extremely competitive industry.

The verdict

NIO has experienced astronomic growth in the last few years and has some market-leading tech behind it. However, for me, the macro-outlook is just too risky to invest in growth stocks at the moment. In addition to this, the supply issues and Chinese regulatory threats could continue to plague the firm. As such, I won’t be buying any shares at $19.

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.

More on Investing Articles

A young Asian woman holding up her index finger
Investing Articles

A “once in a lifetime” opportunity for Rolls-Royce shares?

One firm is hoping now is a “once in a lifetime” opportunity for UK nuclear companies. Our writer reveals whether…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

The IAG share price is dirt cheap and profits are flying. So why am I worried?

After today's positive full-year results, I expected the International Consolidated Airlines Group (IAG) share price to be doing better than…

Read more »

Investing Articles

Is Tesla stock a steal below $200?

Tesla stock has fallen 19% so far in 2024. Currently hovering around $200, this Fool checks if now is the…

Read more »

Investing Articles

3 high-yield dividend stocks to consider for my passive income portfolio in 2024

I want to build a portfolio of dividend stocks that pay enough passive income to retire comfortably. Here are my…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

Direct Line shares soar 25% on takeover bid!

Direct Line shares surged by a quarter on Wednesday, after receiving a takeover bid from a Belgian rival. But the…

Read more »

Investing Articles

Will it be too late to buy Nvidia stock in March?

NVIDIA stock is up more than 60% since the start of 2024. Our writer considers whether it might still be…

Read more »

Typical street lined with terraced houses and parked cars
Investing Articles

Why did Direct Line shares just soar 27%?

Direct Line shares have jumped more than a quarter in the course of today's trading session. Our writer explains why…

Read more »

Close-up of British bank notes
Investing Articles

These 2 shares are Dividend Aristocrats. Which should I buy this March?

Our writer likes the business model of this pair of FTSE 100 Dividend Aristocrats. So why would he only consider…

Read more »