NIO (NYSE: NIO) stock has come down a long way this year. Back in January, the stock was above $30. Today however, it’s near $11.
Should I buy the Chinese electric vehicle (EV) stock for 2023? Or are there better options for my portfolio? Let’s discuss.
The bull case
There are a number of reasons to be bullish on NIO right now. For starters, recent results showed that the group continues to grow at an impressive rate.
For the third quarter of 2022, NIO delivered 31,607 vehicles, up 29% year on year. Vehicle sales amounted to RMB11,933m, up 38% year on year.
Secondly, the EV market in China is projected to grow substantially in the years ahead. According to Mordor Intelligence, it’s set to grow by over 30% per year between 2022 and 2027. That’s a phenomenal rate of growth and it should provide huge tailwinds for NIO.
Third, NIO is branching out to Europe. Back in October, the company unveiled its products and services for Germany, the Netherlands, Denmark, and Sweden at the NIO Berlin 2022 event. The company says it has “full confidence” in its future performance in Europe.
Finally, sentiment towards Chinese growth stocks appears to be improving. This is the result of the easing of Covid-19 lockdowns and China-US tensions.
The bear case
At the same time however, there are quite a few risks to consider. One is the current economic slowdown in China. In November, retail sales in China fell by a huge 5.9% year on year. This suggests that consumers are struggling.
The issue here is that NIO vehicles are expensive. So we may see EV buyers turn to cheaper alternatives in 2023, such as the Xpeng G9 SUV or the Hongguang Mini.
It’s worth noting here that Tesla, which also sells relatively expensive EVs, recently cut its prices in China.
Another risk is production and delivery issues. Earlier this week, NIO revised its Q4 delivery outlook down to supply chain constraints and delivery challenges.
Of course, there’s also the fact that NIO isn’t expected to be profitable any time soon. For 2023, analysts expect the company to post a net loss of RMB6,976m.
Unprofitable companies were out of favour with investors in 2022 and I think it’s likely to be a similar story in 2023. With interest rates rising, investors want to see profits at the moment.
One thing that concerns me in relation to profitability is the fact that gross margin has fallen recently. For Q3, it was 13.3% versus 20.3% a year earlier. That’s a significant decline.
My move now
Weighing up the bull case versus the bear case, I’m going to leave NIO stock on my watch list for now. I do like the long-term growth story here. However, the lack of profitability is a turn-off for me.
All things considered, I think there are better growth stocks to buy for my portfolio right now.
