April was not kind to the NIO (NYSE:NIO) share price. The China-based electric vehicle manufacturer saw its stock fall 20%. That comes in a month when rival Tesla once again posted expectation-busting quarterly figures, with revenues soaring 80%.
I really am starting to think this could be a great time to buy NIO shares, though there are some key risks. But first, what went wrong in April?
The longer-term NIO chart makes the month’s performance look like just a continuation of the year’s trends, down 55% over 12 months:
But to just assume that would be ignoring the short-term hits the company has faced. The name of the big one is Covid. China is going through a surge in infections, and its people are suffering increasingly severe new lockdowns.
April production fall
NIO has just reported on its latest production figures, and it does not make good reading. Production in April declined from March by a whopping 29%. The company put the fall mainly down to those latest pandemic restrictions.
Earlier in April, some of its supply partners had been forced to suspend production altogether. And though the resulting production fall is bad news, I think the knock-on effect could have been considerably worse.
It is a short-term problem too. And I always think short-term issues that adversely affect companies are things we should embrace as long-term investors. For me, share price weakness is not a reason to sell and run, it’s an opportunity to look for a cheap buying opportunity.
Ramping back up
NIO has already said it is ramping production back-up. The company has managed to deliver nearly 700 of its new flagship model, the ET7, in its first full month of shipments.
Investors had feared for its planned expansion into Europe and Australia, but we might not see too much delay there.
All in all, I think the NIO share price was actually fairly resilient in April, and could have fallen lot harder. That could mean investors are seeing a bottom in the stock now.
NIO share price risk
Even if NIO’s April production fall is quickly overcome, investors do still face considerable risks. It’s a US-listed Chinese stock, and there are trade and other political issues between the two countries. That raises the fear of possible delisting. Still, Russia has taken centre stage as world villain now, so maybe that will take the pressure off China.
It’s not yet profitable, and that makes valuation very tricky. So Tesla stock is on a lofty P/E of more than 100, is it? At least Tesla has a P/E, while NIO doesn’t.
I won’t buy NIO shares. It’s partly because I think UK and US companies are safer — and it turns out I was wise not to buy big-dividend Russian stocks. Unprofitable growth shares also turn me off, as I don’t like the risk.
I do, however, think the NIO share price could head upwards by the end of the year.