The NIO (NYSE: NIO) stock price has crashed by 45% over the past 12 months. And if that isn’t bad enough, we’re looking at a 70% slump since the peak price reached in January 2021.
What might propel the electric car maker’s shares back onto an upwards trajectory? Essentially, I think it’s the reversal of some key issues that have sent it tumbling in 2022.
Pandemic
The most recent hit comes from the Covid-19 pandemic. Or, rather, from China’s strict lockdown policy aimed at ending the biggest outbreak the country has seen since the virus was first discovered.
That has led to NIO suspending production in China. So, deliveries are going to be delayed. And we have no idea how long the Chinese lockdown will continue. Still, while the news is bad for business, it hasn’t really damaged the NIO share price any further.
Does that suggest investors are seeing the bottom now and are resiliently holding, or even buying? I really don’t know, and I think there’s still a chance of even further falls before things turn around.
But it does look like we’ll need to see the ending of the current Chinese coronavirus outbreak before NIO shares can get back on track.
NIO stock price revaluation?
In late 2021, I thought we were in for a revaluation of the electric vehicle industry. Tesla stock had climbed sharply earlier in the year, and then started to fall.
But the dip didn’t last, and Tesla stock has regained some of its losses. We’re still looking at a trailing P/E ratio of over 200. There is either a huge amount of earnings growth still to come from Tesla, or the stock is overvalued — or some combination of the two.
Over the past 12 months, while NIO has fallen 45%, Tesla has gained 40%. NIO stock has been revalued downwards compared to Tesla, and by quite some way.
I think that makes NIO look relatively cheap now. But we’ll surely need to see some reversal of the two valuation trends to send the Chinese maker climbing again.
Economic conditions
Growth investing tends to have its most bullish phases when economic times are good. When we invest in growth, especially in a pioneering high-tech business, we take on extra risk. So anything that compounds risk, like a global economic squeeze, could stunt the prospects for the NIO stock price.
Then the accompanying interest rates rises make safe, interest-bearing investments look more attractive. I don’t expect NIO investors to suddenly switch all their money to government bonds or savings accounts. But a changing interest rate environment does lead institutional investors to reassess their asset class allocations.
I find the NIO stock price attractive right now, and I am tempted to buy. I do think we’ll need to see the passing of China’s current Covid outbreak, and improving economic prospects with inflation steadying. Then I think we might see a NIO stock revaluation.
But I think that could take some time. I will wait and watch.