Editor’s Note: This article was updated to correct inaccuracies regarding Nio’s delivery numbers.
Choosing to invest in growth companies is a solid strategy as they often increase market value. After seeing their success, several companies have been expanding and adapting their business into new markets. Some of these innovations will eventually be adopted by the public. NIO (NYSE:NIO) stock has been declining in the last month but should still be attractive. This stock is not worth losing sleep over.
Apart from the fallout of the current market conditions, such as interest rate hikes and inflation fears in the U.S., other factors are weighing down NIO stock.
NIO is attempting to combat the impact of the Covid-19 virus crisis and the release of Tesla’s (NASDAQ:TSLA) Model 3. And with the semiconductor crisis continuing to affect all electric vehicle companies, NIO is no exception. Many carmakers were struggling with the global shortage of semiconductors that effect the auto industry over the last year. Over this time, they had to temporarily halt production to prioritize other measures.
Tesla has finally found its footing in China. The company reported a record-breaking month of January. The EV giant sold 59,845 cars made in China in the first month of the year. In December, Tesla sold 70,847 China-made automobiles. They are also ramping up production in Shanghai.
China has come down a bit on the new energy vehicle subsidies since January, but it still remains determined to push the new energy industry. However, after cutting subsidies by 30% for NEVs, sales for these cars dropped 18.6% sequentially in January.
Still, despite these barriers, NIO is forecasted to have a high growth rate shortly. It is set for success, and this is good news for investors.
NIO Stock Goes Down as Growth Streak Snaps
NIO has reported 9,652 of vehicle deliveries in January — a 33.6% increase year-over-year, but a decrease from 10,489 vehicles in December. Removing incentives for electric vehicles is a slow but necessary thing if you want to get the industry off on its own. That is what the Chinese government is doing. However, consumers have reacted quickly and sales for new energy vehicles (NEVs) have dropped across the board.
Nonetheless, it is important to give credit where it’s due. By avoiding public gatherings and restarting service operations earlier in response to an outbreak, NIO was able to limit the amount of damage that would have occurred otherwise.
Even in the year thus far, Nio has managed to keep a good pace, and many investors look at their performance over the last two months as a testament to their potential.
People generally like to get many things when they shop during the holidays. However, buyer’s remorse is common during the hysteria of Chinese New Year, and the month-over-month decline in shipments due to this is not expected to continue in the coming quarters. But it is yet another factor that could push NIO stock down in the interim.
NIO’s Rebound Is Around the Corner
NIO has been working on its sedan market and it plans to launch its new model in the fall, which could lead to an increase in shipments that would conclude the year. If you’re a car enthusiast and have been looking for news about the new Nio ET7, then the date it begins processing orders is just around the corner.
Electric cars are becoming increasingly popular in China, a great market for NIO. It seems that by 2022, this market will keep growing. Germany and Norway are also key markets for the ET7, and they are going to help attract new export opportunities.
Electric cars are becoming more popular and are also tougher to compete with. They save a lot of fossil fuels and are more affordable than ever, too. This makes them an even more environmentally friendly option for business owners.
NIO’s product lineup in the future will be denser, which should propel its delivery growth. In addition, new all-electric models should complement this model strategy. International expansion will lead to higher deliveries while helping NIO’s shares increase.
However, it is also important to keep the risks in mind when analyzing NIO.
NIO’s production and delivery prospects for FY 2022 are at risk because it is falling behind rival companies regarding growth in both output levels and chip availability. A commercial risk that could affect NIO this year is the possible deterioration of supplies, which would pose problems early enough before it can produce products on time with planned efficiency. This may lead to further issues for NIO stock.
NIO Stock: A Great EV Play At a Discount
From a fundamental perspective, Nio has improved drastically after debt and liquidity fears caused a huge downturn in shares. The company has continued to generate extraordinary top-line growth and it is doing a good job of turning around the company. Things are going well for the EV industry, and Nio is a shining example of that. Technological advancements and innovations like vehicle lineup expansion, entry into Europe and battery innovations have allowed for more runway for growth.
However, the chip supply crunch does pose issues in this near-term scenario.
Few stocks are as highly respected and packed with as much high-growth potential as Nio. The company will need some time to recover, but your chances of making a profit with NIO stock remains high.
On the publication date, Faizan Farooque did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. You can check out his work on InvestorPlace and TipRanks.