The NIO (NYSE:NIO) share price has lost a colossal two-thirds of its value in 2022. And even though it’s still sliding, City analysts overwhelmingly think now’s a great time to invest.
Of the 30 analysts with ratings on NIO shares, 25 rate the company as a ‘buy.’ Five are neutral on the electric vehicle (EV) manufacturer, while there isn’t a single ‘sell’ rating. That’s according to stock screener Digital Look.
So is the NIO share price about to march higher again? And should investors buy the US stock for next year?
Two reasons to buy
The Chinese manufacturer is currently a small fish in the EV market. As of this month only 300,000 of its cars had rolled off the production line. But output is increasing rapidly now that Covid-19 curbs in the country have been eased.
EV manufacturers are well placed to benefit from rising eco-awareness among consumers and accelerating carbon reduction laws. But NIO is especially well placed to profit. After all, China is the world’s largest electric-battery vehicle market.
Research suggests EV sales in NIO’s local market will rise at a compound annual growth rate (CAGR) of 30.1% between 2022 and 2027. Rapid population expansion and booming personal incomes mean sales of ‘cleaner’ vehicles should surge over the longer term too.
Industry giant Tesla’s potentially fading brand power provides another opportunity for NIO to exploit.
Elon Musk’s company has been beset by 20 product recalls in 2022 alone, damaging its reputation as a manufacturer of reliable leading-edge tech. There are also signs that its chief executive’s controversial leadership of Twitter is damaging the value of its brand.
Three reasons not to buy
The trouble for NIO though, is that Tesla is just one of many rivals in an increasingly-congested marketplace.
A recent Reuters report showed that the world’s top carmakers are spending a combined $1.2trn through to 2030 to manufacture EVs and key components and materials. The number of different models available to consumers is tipped to run into the hundreds by then.
A bigger worry in the near term is the ongoing Covid-19 crisis in China. Beijing estimates that 250m people (or almost 20% of the population) caught the virus in the first 20 days of December alone. In this climate fresh sales and production disruptions could be just around the corner.
The demand outlook for NIO’s products is already uncertain as the global economy toils. Spending on big-ticket items like cars tends to fall particularly hard when times get tough. New vehicle sales in China alone dropped 8% year on year in November.
The verdict on NIO
NIO shares have plenty of investment potential. I like the manufacturer because of the vast growth potential of its Chinese territory. It’s also planning to ramp up sales in other major global markets.
However, the colossal competitive pressures it will face in the years ahead discourage me from investing. Sure, the EV industry is increasing rapidly. But the number of models being launched by electric-only and more traditional carmakers is also set to boom. I’d rather buy other growth stocks for my portfolio.
