There’s been a lot of noise about the NIO (NYSE: NIO) share price lately and I thought I should find out what the fuss was all about.
I had expected to find the stock had rocketed and was whipping short sellers and bandwagon jumpers into a frenzy, but no.
What’s that noise?
Shares in the Shanghai-based electric car maker haven’t exactly been barrelling along. In fact, they’re down 14.02% year-to-date and 52.22% over 12 months. So rather than chasing recent past performance, it looks like investors are picking over a potential bargain.
In January 2021, the NIO share price peaked at $61.95. Today it trades at $8.26, having lost 87% of its value. Bargain hunters are excited. So what about me?
NIO, which was founded in 2014 and is targeting the premium smart electric vehicle market, has got everyone talking about its really promising results.
CEO William Li reported that despite the impact of Covid and supply chain disruptions, NIO delivered a total of 122,486 smart electric vehicles in 2022, up 34% year on year. It also reported a sudden acceleration in Q4 revenues, up 60.2% on 2021 to $2.14bn. That’s a rise of 23.7% on Q3, which is also impressive.
The outlook is promising with the growth rate set to continue and Li reporting “strong confidence in the market demand in 2023”.
NIO is launching new products, cutting waiting times, rolling out its “intelligent driving” vehicles and expanding its charging and battery swapping network. It has also started to deliver its mid-large smart electric SUV to the first batch of users in Europe.
Like Tesla, this is a play on the shift towards carbon-free electric motoring. As Tesla followers will know, this promises a bumpy ride.
I’m talking this stock down
There has been some pushback against net zero lately, with targets for ridding our roads of fossil fuel motors looking overly optimistic. Critics claim green cars aren’t as eco-friendly or socially responsible as we’ve been told, given their consumption of rare earth minerals.
It’s an even bigger issue with Chinese motors manufactured using coal-fired power plants and shipped around the world in an age of reshoring. Increasingly sour US-China relations could prove another headwind.
Western consumers must also learn to see Chinese vehicles as premium products, and not just cheap. Yet on the plus side, NIO’s battery swapping operation is quite exciting, as it eliminates time spent charging. It will be a big job to build the necessary network, although it will also bring in a whole new revenue stream.
I can see why investors can’t stop talking about it. There’s huge potential here and the share price collapse screams cheap. Management hopes to break even next year.
Yet there’s no way I’m buying NIO shares today, though. It’s too risky for me, and a lot could go wrong on the route to global electric motoring dominance.
I’d like to add a few growth stocks to my portfolio, which is mostly comprised of high-yielding FTSE 100 dividend companies. But NIO isn’t the best place to start. I’ll leave the talking to others.
