Despite a few brief rallies, holders of NIO (NYSE: NIO) stock have endured a pretty awful 2022 so far. As of last Friday’s close, the share price has crashed 40%. Unfortunately, I can see things getting worse before they get better for the US-listed Chinese electric vehicle (EV) maker.
Production shut down
Over the weekend, the $30bn-cap company announced it had suspended production in its home country as a result of the jump in Covid-19 Omicron infections impacting its suppliers.
Clearly, worker safety is an absolute priority. However, the fact the announcement added that all affected sites “have yet to recover” hardly bodes well. Deliveries to customers will now be delayed and, as things stand, we’re not sure by how long.
Reasons to be… optimistic?
Seen purely from an investment perspective, I suppose one admittedly small silver lining to this cloud is that NIO isn’t alone in needing to suspend production. Volkswagen temporarily shut up shop in Changchun in the middle of last month. Tesla followed suit towards the end of March by closing its Shanghai facility. What’s interesting is that their share prices haven’t crashed since. This potentially bodes well for holders of NIO stock. However, I’d rather not bet anything on it.
Perhaps more encouragingly, NIO’s delivery rate has been improving. Despite the aforementioned headwinds, the firm succeeded in delivering just under 10,000 vehicles in March. That’s a 63% rise from the previous month. It also brings the number of cars delivered in Q1 to almost 26,000 — a near-30% increase on the same period in 2021. That’s a good indicator of increasing demand for EVs and is also a record for the company.
Is NIO stock now a bargain?
So it might actually be a good time to load up on NIO. Should the company be able to surprise on the upside (perhaps following an earlier-than-expected reduction in infection rates), we could see a significant bounce.
There’s also a sense these are very much short-term issues. The pandemic will pass at some point, allowing production to get back on track.
It’s not like NIO has been sitting around either. Its new SUV — the ES7 — will be showcased very soon. Considering just how competitive this space already is, that’s no bad thing. It’s also interesting to note that NIO has so far elected not to raise the prices of its cars, unlike rivals.
Not for me
Despite falling so far, NIO is still worth double what it was when first listed in September 2018. Anyone who had the foresight to buy back then would still be sitting on a great capital gain. I’d focus on that, less on the 68% fall in the share price since it peaked in January 2021.
Even so, I can’t shake the feeling that the value of NIO stock hasn’t bottomed just yet. A test of the current 52-week low of $13 may be too pessimistic but this period of limbo is unlikely to be embraced by traders.
There are now a huge number of ways of getting exposure to the EV revolution and ‘green energy’-related shares in general. This is just one example and, I submit, probably one of the riskier options. I’m steering clear for now.