The Motley Fool

The NIO share price has plunged! Here’s what I’d do now

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.

Image source: Tesla

The NIO (NYSE: NIO) share price has plunged this year. Year-to-date, shares in the electric vehicle producer are off 33%. The stock has declined nearly 19% in the past month.

Still, despite this performance, shares in the business have returned nearly 1,000% over the past 12 months. Long-term investors have been handsomely rewarded for sticking with the company over the period. 

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

However, past performance should never be used as a guide to future potential. Just because the company has performed so well over the past year doesn’t necessarily mean it’ll continue to outperform the market as we advance. 

NIO share price opportunity

NIO is trying to become the ‘Tesla of China’. The China-based business is focused on developing upscale electric vehicles at an attractive price point. As Tesla has already proved, there’s a vast and growing market for these sorts of vehicles. China is also the world’s largest new vehicle market. 

In my opinion, there’s no denying NIO has enormous potential. The business is targeting 100,000 car sales in 2021. And there’s speculation the company could be selling a few million cars by the middle of the decade. Last year, it sold 43,000 vehicles. 

But here’s the thing, NIO is very richly valued. The company’s market capitalisation currently stands at just under $60bn. By comparison, peer Ford is worth just $48bn. Ford sold 4.2m vehicles last year. 

However, according to some analysts, this valuation is justified. Considering its long-term potential, the corporation should be worth significantly more than traditional carmakers, analysts argue. The average Wall Street price target for the company is $62.04. That’s nearly 80% above current levels. 

Risks and challenges

Of course, these are just projections. They assume the best-case scenario. Designing and producing cars is a highly competitive market, and it’s only becoming more so.

Over the past 12 months, a whole host of electric vehicle companies have gone public, including London-based start-up Arrival. These businesses are all vying for market share and spending tens of billions of dollars developing new vehicles. At this stage, I think it’s impossible to say which ones will succeed and which will fail. 

Therefore, I’m not in a rush to buy NIO shares after its recent performance. I can’t deny the company may have tremendous potential, especially in its home market. It’s quickly taking market share in China and has a lot of supporters in the country. But, in my opinion, that doesn’t guarantee success. 

That said, I do think electric vehicles are the future. That suggests to me NIO may meet its ambitious production goals over the next few years. However, as an investment, I’d rather choose a more established player. I’d rather own companies such as Tesla or Volkswagen as these businesses are already producing hundreds of thousands of electric vehicles every year. 

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of and has recommended NIO Inc. and Tesla. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.