NIO shares are down 20%. Should I buy the stock now?
As the Tesla share price hit the $1,000 mark at the tail end of last month, I looked at whether I would use that as an opportunity to add it to my portfolio. I currently hold a bearish stance on Elon Musk’s business that has witnessed a meteoric rise. Yet one alternative in the electric vehicle (EV) sector that also excites me is NIO (NYSE: NIO). The stock has had a disappointing year considering its enormous 1,000% return in 2020. Down 20% year-to-date, this raises the question of whether it presents an opportunity for me to add NIO shares to my portfolio.
The mention of powerhouse Tesla provides a segue to one major concern that makes me hesitant to buy NIO shares, which is potential competition. The EV market is an expanding one, and as such, is likely to become saturated in years to come. Tesla’s recent agreement with Hertz for 100,000 cars shows the scale NIO’s competitors are already operating on, and many other firms are making headway in the sector. Ford recently announced an $11bn investment into EV production in the US. The firm says it hopes by 2030 that half of its cars sold will be zero-emission. As more businesses strengthen their EV operations, NIO could find expansion more difficult. For me, this is a worrying factor.
Another threat to the NIO share price is the fact it is still a loss-making business. While Q2 saw a 34.2% decrease in losses from operations year-on-year, the net loss for the period was $91m. The firm has nearly $10bn of losses on its balance sheet. Should this rise further, this could have negative implications for the price of NIO shares.
However, NIO has continued to deliver some impressive results. It recently provided a September and Q3 delivery update which contained some solid figures. September saw the firm deliver 10,628 vehicles globally, an all-time high monthly figure, and a 125% increase year-on-year. Some 24,439 vehicles were delivered in Q3 in total. NIO also completed its first batch of deliveries in Norway towards the tail end of September. This shows the wheels are in motion for expansion out of China. When looking to add NIO shares to my portfolio, these are promising factors.
Should I buy?
I think NIO has bags of potential, and for a slashed price of $43, it could present a real opportunity. What largely concerns me is competition. The EV market will naturally become more lucrative as a larger emphasis is placed on climate impact, and as such, more firms will shift their attention to the sector. This could see NIO get pushed out by more established companies. However, it continues to add to its impressive results quarter-on-quarter. With the full Q3 results being released at market close today, I will be eagerly waiting to see what sort of update it provides. With that said, I’m putting off from buying more shares until I feel confident the firm can adapt to the high levels of competition it will be facing.
Charlie Keough owns NIO shares. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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