NIOÂ (NYSE: NIO) stock has sunk over the past year, falling around 35%. This is despite the general rise in many EV stocks. For example, Tesla has risen over 40% in the same period, while new EV maker Rivian managed to reach a valuation of $93bn, despite not making any revenues. As such, why has NIO stock fallen so significantly, and is now a great time to buy?
Why have the shares fallen so much?
There are several different factors that have caused NIO to suffer so considerably in recent months.
Firstly, there are worries about Chinese stocks. Indeed, due to the persistent tensions between the US and China, there is the very real risk that Chinese companies will no longer be able to list in the US. This has already led to Didi delisting from the US. As such, if the Chinese government decides that it no longer wants to allow the US regulators access to internal auditing documents of Chinese companies, NIO may have to delist as well. This would force the company to either list in Hong Kong or Shanghai, and this would cut off a key source of funding from the US stock exchange. That could see Nio stock fall further.
Further, there is also the issue of rising competition. Alongside the current market leader Tesla, this includes several traditional automotive companies, like Toyota and Volkswagen, which are also investing heavily in EV cars. In China, there is also the presence of EV makers such as XPeng, which has recently announced that it will roll out a supercharger that can charge one of its cars in five minutes. This may give XPeng a competitive edge, which could have detrimental effects for NIO.
Upside potential
Despite these risks, NIO does certainly have a ton of potential. For example, in the third quarter of 2021, it recorded 24,439 deliveries, a 100% rise year-on-year. This meant that total revenues in the third quarter totalled $1.3bn, a 116% rise year-on-year. This represents incredible growth and clearly demonstrates the potential of the EV maker.
Further, there is the upcoming NIO day, which is scheduled for tomorrow. It has already been announced that a new model will be released, and this is a sign that the firm is continuing to develop. I think that this could have a positive effect on the stock.
Would I buy the stock?
Despite the risks with NIO, I still believe that there is upside potential. For one, it is currently valued at $46bn, which is around half its value of February 2021. This gives it a price-to-sales ratio of under 10, which is fairly cheap in comparison to other EV stocks. For example, Tesla has a price-to-sales ratio of around 20 yet is seeing far slower revenue growth. This higher valuation may be because Tesla has reached profitability, and has not got any Chinese worries, yet it still indicates that NIO may be cheap. For this reason, while it may not be a ‘no-brainer’, I’m still very tempted to buy, despite the problems that face the company.