Over the past six months, NIO (NYSE: NIO) stock has halved in value. This disappointing trajectory has reversed the astronomical growth that NIO experienced in 2020, when its shares rose from under $5 to over $60.
Being a long-term holder of NIO stock, these share price movements have been pretty tough to watch. 2022 alone hasn’t been much better, with the shares down 41% year-to-date. So, at under $20, are NIO shares a bargain? Or should I stay away from buying more for my portfolio?
The bull case
The primary reasons why I like the look of NIO stock at its current price are the stellar results the company has been able to keep issuing. Between 2020 and 2021, car production grew by a whopping 109%. More recently, NIO saw record deliveries for March, when it delivered 9,985 vehicles. This figure marked a 37% delivery increase year-on-year, and 63% month-on-month. The growth highlights the increasing demand for electric vehicles and for the NIO brand.
The bear case
The delivery figures are great. However, there are some uncontrollable risks facing NIO that concern me. Perhaps the largest of these risks is the threat of rising interest rates across the world. As a rule of thumb, when rates rise, high-growth stocks like NIO take a hit. This is because people turn away from riskier investments as they can earn more from safer assets. The US has already started to increase rates, and there are rumours among Federal Reserve officials that even greater rate hikes could be imminent.
In addition to this, the EV manufacturer recently announced a pause in production due to Omicron-related supply chain issues. This has come after a huge Covid-19 outbreak in Shanghai, which has forced the city to enter another lockdown. If these disruptions continue, then it could seriously impact the manufacturing capacity of the firm, and in turn, push NIO stock down further.
In addition to the Shanghai lockdown, NIO’s supply chain is being affected by chip shortages. It currently uses around 1,000 different chips in each car it makes and has reported that it’s suffering shortages for around 10% of these. This is another factor that could really hurt the company’s production capabilities.
A final risk that it must face is the heavily competitive landscape of the EV market. Incumbent players like Ford and General Motors are pouring billions into EV research and manufacturing. They also have the existing consumer base and productive capacity to outshine smaller players like NIO. Closer to its home, firms like Xpeng and Li Auto are also growing incredibly fast. If NIO can’t remedy its supply issues, it may lose vital market share to some of these other players.
The verdict
NIO’s high growth does excite me. However, I can see many external challenges that are pitted against the company at the moment. I do think NIO stock looks cheap at current levels, but I think there could be a further fall in the near future. As such, I won’t be adding more shares to my portfolio today.