As the NIO share price slides, should I buy the stock?

Rupert Hargreaves explains why he’s not attracted by the NIO share price, despite the fact that the company’s stock has been falling recently.

| More on:

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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The NIO (NYSE: NIO) share price has been sliding this year. The sell-off has only accelerated in recent days. Over the past five days, shares in the company have fallen by around 15%. Year-to-date, the stock’s off 28%, although over the past 12 months, it’s added 175%.

Fatal crash 

This week, shares in the electric vehicle (EV) company have been selling off after one of its vehicles crashed. Initial reports suggest that a prominent Chinese entrepreneur was killed using his NIO vehicle’s hands-free driving system

This is the second fatal crash involving one of the group’s cars in recent weeks. And Chinese regulators are now starting to take note. On both occasions, drivers were using NIO’s hands-free driving system. It could be the case that this system is suffering teething problems, which regulators may well order the company to put right.

Such a development would be a setback for the group, but it may be relatively easy to rectify. What’s more, I don’t think investors and customers are buying into the company’s offer just for its assisted driving software. I believe its interchangeable battery-pack technology is far more appealing. In my opinion, this is where the real value lies. 

As such, as the NIO share price has drifted lower, I’ve been wondering if the stock is becoming undervalued. 

Is the NIO share price cheap? 

I’ve looked at this company several times in the past. On each occasion, I’ve struggled to come up with a value for the business. NIO’s still losing money, and despite its potential, that makes it hard for me to value. 

Further, recent actions by Chinese policymakers have made it challenging to evaluate Chinese equities in general. Last month, policymakers decided to ban education companies from charging students and that sent shares in these firms plunging more than 90%. Regulators have also attacked other organisations such as taxi operator DiDi, inflicting huge losses on investors. 

The thing is, I don’t know where regulators will strike the next. They could go after NIO. If they do, there’s no telling how much of an impact this will have on the NIO share price. 

Therefore, I don’t want to risk my hard-earned money on an investment with such an uncertain future. Instead, if I had to pick one EV company, I’d pick Tesla. This business is already far more established, and while it’s had its fair share of run-ins with regulators, there’s little-to-no chance regulators will close the business down overnight. 

Overall, I do think NIO owns some valuable technology, and customers like its electric vehicles, but I believe the company’s outlook is just too uncertain. With this being the case, I wouldn’t buy the stock for my portfolio, even though it’s recently declined in value. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any of the shares 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.

More on Investing Articles

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »