NIO (NYSE:NIO) stock has taken a massive hit this year. At the start of 2022, shares in the ‘Tesla of China’ were trading above $30. Today however, they can be snapped up for less than $11.
Is this a great buying opportunity for me? Or is NIO stock a risky proposition from here? Let’s discuss.
The NIO growth story
The long-term growth story here is still very much intact. This is illustrated by the fact that in the third quarter of 2022, NIO delivered a record 31,607 vehicles, an increase of 29% year on year. As of 30 September, cumulative deliveries were 249,504 compared to 142,036 at the same stage last year.
What’s exciting is that the electric vehicle (EV) company is currently in the process of launching in a number of European countries, including Germany, the Netherlands, Sweden, and Denmark. In these countries it’s set to offer three vehicles – the ET7, ET5 and EL7. This should give growth a boost.
However, it’s worth noting that NIO plans to operate its business in these countries on a corporate leasing and subscription model. In other words, it will not actually be selling cars. It believes this business model will give it more flexibility. “Flexibility is the new premium,” said CEO William Li in a recent interview.
In light of this growth story, NIO stock could still be a good bet for long-term investors like myself.
Could the share price fall further?
Having said that, there are quite a few risks here that could potentially put pressure on the near-term share price.
One is production challenges, which is an industry-wide issue right now. At the moment, all EV companies are suffering from supply chain issues, battery sourcing problems, higher costs, and logistical issues. Earlier this week, Tesla said it would miss yearly delivery growth targets due to logistical challenges.
Another issue is auto sales growth in China, which appears to be slowing. In September, year on year sales growth was 25.7%, down from 32.1% in August when EV sales grew at a faster rate due to government incentives.
“The recovery trend is far lower than our expectation. The market is overall relatively weak,” commented China Passenger Car Association (CPCA) secretary general Cui Dongshu.
A third issue is competition from rivals. Right now, NIO is facing intense competition from start-ups and established automakers, both in China and Europe. In Europe, for example, its cars are up against the likes of Mercedes’ EQS and BMW‘s i4.
Finally, there’s the fact that the company is losing money. This year, analysts expect NIO to post a net loss of around $1.1bn. That’s not ideal from an investment perspective. In the current environment, unprofitable companies are very much out of favour.
My move now
Given these risks, and the fact that the company’s market-cap is still quite high, at around $19bn, I’m going to leave NIO stock on my watchlist for now.
In my view, there are safer growth stocks to buy for my portfolio today.