The NIO (NYSE:NIO) stock price has had a fairly rough month, so far. Since the start of August, the electric vehicle company has seen its shares slide by just over 20%. Despite this recent fall, it’s still up by nearly 160% over the last 12 months.
But the question remains, what’s behind NIO’s declining stock price? And is this a buying opportunity for my portfolio?
Strong performance keeps coming
Despite what the recent performance of NIO’s stock price would suggest, the company is actually doing rather well. At least, that’s what I think. Last week, the management team published its second-quarter earnings report, which showed substantial across-the-board growth.
The total number of vehicle deliveries have risen to 21,896 over the last three months. This is only a small leap from 20,060 in the previous quarter. But given the ongoing semi-conductor chip shortage, seeing a bit of a slowdown is hardly surprising. However, even with production delays, total vehicle deliveries are still more than double compared to 2020.
As a result, revenue came in 127.2% higher than a year ago. And losses for the period narrowed to $117m from $178m. While profitability has yet to raise its head, the company looks like it’s travelling in the right direction. And as the disruptions to the supply chain slowly resolve, quarterly growth is likely to return. That’s obviously good news for the NIO stock price. So why did it drop?
The falling NIO stock price
The firm has begun facing increased external pressures from regulators. Chinese president Xi Jinping recently announced a new pledge to start a wealth distribution plan. While the specifics currently remain unknown, it’s speculated that higher tax rates are inbound for the wealthier citizens of China.
Since NIO effectively sells a luxury product, any additional taxation on its target audience doesn’t exactly create a favourable selling environment.
But beyond this macro-economic factor, the company has found itself in hot water surrounding the safety of its autopilot feature. Prominent Chinese businessman, Lin Wenqin, was involved in a fatal car accident that may have been caused by NIO’s autopilot system.
Much like Tesla, NIO is now under investigation. The China Passenger Car Association is performing an inquiry as to whether NIO’s technology has a safety-related flaw. If one’s detected, then it’s highly likely the firm will face severe legal penalties, as well as substantial reputational damage.
These latest factors add a good portion of uncertainty. And like all high-growth stocks, a whiff of trouble is enough to induce significant volatility. So I’m not surprised to see the NIO stock price fall on the news.
Is now the time to buy?
Overall, I believe NIO as a business is performing admirably. And if it weren’t for the regulatory unknowns, this price dip could very well be a buying opportunity. But as it stands, it’s challenging to judge just how much of an impact the new wealth distribution plan and regulatory investigation will have on the NIO stock price.
So, for now, I’m keeping NIO on my watchlist until a more transparent picture forms.
