Last year will be remembered as one when markets experienced massive volatility. But for long-time investors in NIO (NYSE: NIO) stock, that was probably nothing out of the ordinary.
That’s because it’s been one hell of a ride since the Chinese electric vehicle (EV) manufacturer hit the public market back in 2018. In fact, the widely used metaphor of a roller coaster is fitting.
That’s because a five-year NIO stock chart looks like a theme park attraction, with white-knuckle climbs and dizzying drops.
So, how would I be doing if I’d invested £1,000 in the so-called ‘Tesla of China’ at the beginning of 2022?
Big dipper
Back at the start of last year, NIO shares were above $30. They began this month under $11. That means the stock dipped around 66% in 2022.
So if I’d made a £1,000 investment at the start of 2022, I’d have around £340 today. I’d be down £660 or so. That’s assuming I paid no commission to purchase the shares. If I did, then I’d obviously be down a bit more.
That’s clearly not great. And because the company invests everything it generates (and then some) back into its operations to fuel further growth, it pays no dividend. I’d be left with just a substantial capital loss, as things stand today.
Why has this happened?
Gale-force headwinds
Unpicking precisely why a stock has fallen is sometimes a difficult task. But in the case of NIO shares, it seems very likely that two big things have gone against them.
The first and most obvious is that the market has turned against growth companies that aren’t generating any profits. That certainly applies to NIO, as it reported a net loss of $582m in the third quarter of 2022. And the company doesn’t expect to be generating consistent profits any time soon.
The second thing weighing on NIO stock is the ongoing problems with the Chinese economy. The government’s (now abandoned) ‘zero-Covid’ lockdown policies continued to disrupt normal economic activity.
In November, retail sales in China fell by 5.9% year on year. This suggests that many Chinese consumers are struggling financially right now, making it more unlikely they’ll splash out on one of NIO’s luxury EVs.
On top of this, government subsidies for EV buyers in China expired at the end of last year.
Will I buy the stock?
Despite these headwinds, NIO recently announced it had delivered 15,815 vehicles in December. That was an increase of 50% year on year and a monthly record.
For the fourth quarter (ended December 2022), it delivered 40,052 EVs. That was an increase of 60% and a quarterly record. For 2022 in total, NIO delivered 122,486 vehicles, an increase of 34% over 2021.
Even with the ongoing Covid crisis there, China still accounted for more than half of all EVs sold globally in 2022. I think that demonstrates how powerful the EV trend has now become. It’s unstoppable and will last for decades.
So, will I buy? No, not quite yet.
I’m leaving NIO stock on my watchlist for now, as I’m intrigued by the growth story here. But until the company starts posting profits, I think investor interest in the stock will remain muted.
