These days, some short-term problems are taking a serious bite out of Nio (NYSE:NIO) stock. The Chinese electric vehicle (EV) company is down more than 28% so far this year.
Should investors be worried? Or is this a golden opportunity to buy Nio shares on a dip?
That depends on what kind of investor you are. If you’re looking to make a quick buck and trade frequently, the Nio problem is one to closely consider. There are some supply issues in China that could be problematic for EV companies in the near future.
But if you’re a buy-and-hold investor who has a long timeline, you’ve got to be pretty tempted by Nio right now. At these prices, the stock may be hard to resist.
NIO Stock at a Glance
Earlier this month, the fast-growing car company reported fourth-quarter earnings that hit revenue projections but showed a bigger-than-expected loss in profits.
Revenue came in at 6.64 billion yuan, or $1.02 billion, versus analysts’ expectations of $1.01 billion. Losses were at 0.93 yuan, or 14 cents per share, versus analysts’ expectations of a loss of 7 cents per share.
A year ago, Nio posted revenues of $407 million and a loss of 39 cents per share.
The company said on a year-over-year basis that revenues were up 133% in the fourth quarter of 2020. They increased by 46.7% on a quarter-over-quarter basis.
Reasons for Concern
Nio’s numbers look perfectly fine. But the company also disclosed a slowdown in vehicle sales and deliveries in February.
In the fourth quarter, Nio delivered 17,353 vehicles, or an increase of 111%. January sales fell to 7,225 – not a surprise, considering that many businesses in China shut down for a week in January for the Lunar New Year holiday.
But the downturn continued in February, with sales slowing to 5,578, Nio disclosed.
CEO William Li told analysts that the global shortage in semiconductor chips will affect Nio’s production in the second quarter. While Nio is capable of producing 10,000 cars per month, the shortage of chips and batteries will force Nio to slow production to 7,500 per month, Li said.
The shortage can be traced to effects from the novel coronavirus – as people were shut away in their homes, demand for tech devices such as gaming consoles and laptop computers soared.
That means fewer chips are available for auto manufacturing. Michael Woodward, head of auto at Deloitte, estimates that a typical car contains 1,300 semiconductor chips. An electric vehicle contains many more – up to 3,500 chips.
Fortunately, vaccines are working their way around the world, and we may be coming out of the coronavirus pall this year. The shortage won’t last forever. But it is having an impact on Nio stock now.
Reasons for Optimism
One thing that makes Nio interesting is its approach to batteries. It has a Battery as a Service (Baas) program that features swappable batteries for its cars.
In short, a Nio customer can just visit a Power Swap station and change out their depleted battery for a fresh one in a matter of minutes. Or, they can upgrade to a battery with a higher capacity, Li says:
“Under Nio’s service system, every user can shift to – upgrade to different battery packs on demand. Nio is devoted to building an innovative model of battery vehicles operation and battery subscription with chargeable, swappable, upgradable batteries, as well as providing holistic power solutions to users.”
The other thing that stands out with Nio, is that it’s more than just an automotive company. It operates 23 Nio Houses and 303 Nio Spaces in 121 cities in China, where it promotes a Nio-branded lifestyle and allows people to interact with the vehicle and the brand.
The Nio Houses and Nio Spaces allows the EV company to double down on promoting a unique customer experience. It’s making the case that buying a Nio vehicle is more than a choice in automobile, but it’s a choice to be part of a culture.
It’s too early to tell if Nio’s philosophy will take off as Nio expands into Europe and, potentially, the U.S. But it is unique.
The Bottom Line
Short-term headwinds are taking a toll on Nio stock. But if you have a long-term horizon, the semiconductor shortage is a setback you can manage.
Nio stock is still one of the best EV plays on the market. With its footprint in China, where it has a distinct advantage over U.S.-based automakers, I still believe the future is bright.
Nio has an “A” grade and a buy recommendation in my Portfolio Grader.
On the date of publication, Louis Navellier and the InvestorPlace Research Staff member primarily responsible for this article held long positions in NIO.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.