Chip Shortage Provides a Buying Opportunity in Nio

It hasn’t been a good year so far for Nio (NYSE:NIO) stock. Down 35% year-to-date, its share price has traded in a range between $30 and $45 for most of the past two months. 

A Nio (NIO) store at night in Shanghai, China.
Source: Robert Way /

As I write this, it’s at the low end of the range, below $32. If you bought Nio shares a year ago, you’re up almost 770%. You might want to take some profits. However, if you’ve never owned the stock, but believe the electrification of passenger vehicles is the real deal, now would be an excellent time to consider taking a position.

Here’s why I feel this way. 

NIO Stock Near a Six-Month Low

Before Nio got into its latest funk, it hadn’t traded below $40 since November 2020, rising to a 52-week high of $66.99 by mid-January before wilting. It has definitely seen better days. 

When I last wrote about Nio on April 8, I said that even though Nio isn’t likely to be revisiting $60 in the near term, a buy in the $30s makes sense. A month later, it appears as though the industry-wide semiconductor shortage could have more of an effect on vehicle makers than originally thought. 

Ford (NYSE:F) CEO Jim Farley had some doom-and-gloom statements at the end of April about the shortage. 

“There are more whitewater moments ahead for us that we have to navigate. The semiconductor shortage and the impact to production will get worse before it gets better. In fact, we believe our second quarter will be the trough for this year,” Farley told analysts during its first-quarter conference call. 

Farley believes the shortage will cut the company’s production in half and won’t be fully resolved until 2022. Nio might have an excellent group of vehicles to sell, but it’s not going to be able to avoid the same fate. 

This is why the stock has been stuck in second gear for the past two months. 

Nio’s Latest Results

When Nio reported its Q1 2021 results on April 29, it delivered revenues of 8 billion Chinese yuan ($1.25 billion) compared to the analyst consensus of 7.5 billion yuan ($1.17 billion). Deliveries missed the estimate by 10 vehicles, coming in at 20,060. That’s not worth fretting about. 

However, the reported loss of 3.14 yuan (48 cents per share) was considerably higher than the 72 yuan (11 cents) estimate for the quarter, which has investors leery of Q2 2021 and beyond.   

Over at Ford, it cut its full-year EBITDA (earnings before interest, taxes, depreciation and amortization) to between $5.5 billion and $6.5 billion because of the chip shortage. That’s down from its initial 2021 guidance of between $8 billion and $9 billion. 

There’s no question that Nio’s bottom line is going to be affected by the chip shortage. 

However, it still expects healthy sequential increases for both vehicle deliveries – a 5-10% increase over Q1 2021 – while total revenue is expected to increase between 2.1% to 6.5% over Q1 2021.  

When you consider that Nio’s adjusted loss from operations in the first quarter was $54.1 million, 79% less than Q1 2020, and 73% lower than in the fourth quarter of 2020, I don’t think investors need to worry that the company’s going to return to the old days when it could barely afford to pay for the electricity to keep the lights on. 

Any weakness in its earnings report in July could provide investors with an excellent buying opportunity.

The Bottom Line

InvestorPlace’s Vandita Jadeja recently called Nio the best electric vehicle (EV) stock on the market with strong fundamentals and an impressive product range to sell to customers all over the world and not just China.

My colleague mentions the fact Nio is ready to enter the European market in the second half of the year, joining Chinese EV rival Xpeng (NYSE:XPEV) that is already there. 

Paraphrasing Warren Buffett, if Nio stock were to remain in the low $30s or fall into the high $20s as a result of chip-shortage uncertainties, you ought to be very happy about the chance to buy Nio at half its all-time high.

As my colleague stated, NIO stock is an excellent addition to your long-term portfolio.      

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

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