The NIO (NYSE: NIO) share price had a standout 2020, rising nearly 1,200% for the year. However, this bull run was cut short in February 2021 as NIO stock plunged over 30% in value from its January high of $62. The share price seems to have regained some of its 2020 momentum though, having risen 30% in the past 30 days. Will this bullish run continue? Let’s take a closer look.
Tech sell-off engulfs NIO
The main reason for the fall in the NIO share price was that the stock was part of a larger tech sell-off. This saw the value of the Nasdaq composite – a tech-heavy index – fall by over 10%. The main reason behind this is the increasing bond yields that are fuelling higher inflationary expectations. If investors are expecting inflation, they sell bonds, which reduces their price but increases their yield. Higher bond yields, therefore, signify higher expected inflation. This threatens growth stocks like NIO as it erodes their future earnings and reduces their valuations. If bond yields continue to rise, it could seriously restrain the future growth of the NIO share price.
Another reason for the fall in the share price is the global semiconductor shortage. NIO is an electric car manufacturer and is therefore heavily reliant on semiconductors. With demand outweighing supply, NIO was forced to suspend production for five days between March 29 and April 2. The firm estimated this to have translated into an output loss of between 500 and 1,000 vehicles for the year. Some analysts are estimating the shortage to last up to two years. It’s therefore likely this will an ongoing problem for NIO’s production.
Reasons to be bullish
Although the above factors could limit the ongoing growth of the share price, there are still plenty of reasons why the bull run could continue. NIO’s 2021 Q1 results contained some seriously encouraging numbers that have no doubt led to investors snapping up more shares, pushing the share value higher. Deliveries were up almost 500% compared to Q1 2020, and gross profit was up 36.2% quarter-on-quarter. In addition to this, net losses were reported to be falling, signifying some movement towards profitability.
A 30% year-on-year increase in gross margins is another thing I picked up from the results. This is largely from customers opting for longer-range battery packs. The spare cash is being ploughed back into scaling up production and deliveries. This shows me the firm is really fitting that ‘growth stock’ picture, giving me optimism for a continuing rise in the share price.
Will the shares keep rising?
The NIO share price has certainly picked up some of its 2020 momentum. I think at present that solid moves forward in the company’s production and distribution are outweighing interest rate and semiconductor worries.
However, interest rates and semiconductor shortages are among some of the problems that NIO must effectively manage moving forward. The management of these problems will affect how the share price progresses. As a current investor myself I am confident the firm will overcome these hurdles and the shares will continue to creep upwards.
Dylan Hood owns shares in NIO. The Motley Fool UK owns shares of and has recommended NIO Inc. 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.