Chinese electric vehicle (EV) maker Nio (NYSE:NIO) hasn’t exactly wowed investors thus far in 2021. Down about 18% year-to-date, NIO stock is either an obvious buy on every dip or a too-volatile name that ought to be avoided, depending on who you ask.
That said, let’s take a closer look at how the company fared in the first three months of the year.
Nio delivered just over 20,000 vehicles in the first quarter of 2021, a 423% increase year-over-year. Additionally, 7,257 vehicles delivered in March marked a new monthly record and 373% growth over the same month in 2020.
The strong sales numbers came despite the company closing its Heifei production plant for five days in late March due to the ongoing semiconductor shortage. The company initially said that supply constraint would slightly reduce the number of vehicles delivered in the first quarter, but ultimately met its initial outlook.
However, Nio also said its chip shortage is likely to hit production in Q2 of 2020.
Chip Shortage Hurting EV makers
The ongoing semiconductor shortage is probably the single biggest story for NIO stock right now, though trade tensions with China are certainly uncomfortably high for investors in foreign stocks. That said, low tariffs and friendly international relations will mean very little to Nio stockholders unless their electric vehicle company is producing electric vehicles.
Unfortunately for NIO and other automakers, the chip shortage could continue into 2022. And it’s compounded by a foam shortage. This is an issue because automakers use foam in their seats. But that foam is made from oil refinery byproducts, which have been in short supply due to refineries suspending operations.
Infrastructure Plan for Charging Stations
Moreover, news that the Biden administration is eyeing these supply chain constraints might reassure investors, but the biggest benefit from Biden could be his $2.3 billion infrastructure proposal, which includes $174 billion for promoting EVs and EV charging stations. In turn, a big government investment to expand charging networks would dramatically widen the market for EVs.
However, the President isn’t nearly as keen on China as he is on EVs — which is bad news for NIO stock. The ongoing trade war between the two nations saw recent trade talks in the second half of March, which didn’t end particularly well; the U.S. Securities and Exchange Commission decided to go ahead and instate Trump-era measures regarding the auditing and delisting of Chinese stocks.
With that, the trade war has been a major downer for Chinese companies across the board, but particularly volatile for EV makers. Investor enthusiasm for this sector has surged in the past year, but just because EV bulls were right doesn’t mean NIO bulls will be.
Overall, electric vehicles are here to stay. But it’s anybody’s guess which specific companies will be around in six months, let alone the automaking juggernauts of tomorrow.
Bottom Line on NIO Stock
I’m not suggesting NIO stock is poised to crash any time soon, but investors should be aware that the entire sector is quite frothy right now. Gains are outsized, but so too are losses. It makes sense that big headlines regarding the chip shortage and the trade war have seriously impacted NIO stock.
When Nio reported Q4 and full-year 2020 earnings on March 1, an earnings miss was offset by a revenue beat and strong delivery numbers. Major growth in vehicle margins was a clear highlight pointing towards increased profitability for the company.
Also, Nio recently filed paperwork to list on the Hong Kong exchanges, which will broaden its ability to raise capital. And the company has recently registered a trademark for a new model of car, which should excite investors and customers alike.
So, while there may be some negativity surrounding NIO stock, the EV company looks like it could make a comeback as we move further into 2021.
On the date of publication, Vivian Medithi did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Vivian Medithi is a web editor at InvestorPlace.