With the prospect of rising interest rates, stocks in growth industries have taken a beating. The Nasdaq Composite continued its descent into correction territory. But at least some companies are now considered more attractive after the downturn. For many years, NIO (NYSE:NIO) was one of these top-performing stocks. However, with the market cooling in recent months, the price has fallen. You can buy NIO stock at a discount for a limited time only.
Nio is Chinese-based and provides luxury electric vehicles. They also hope to double their lineup by 2022, with innovations and battery technology in EVs. Nio plans to launch its first electric sedan, the ET7, in March and the ET5 in September.
Nio has been around since 2014, when the company first started as a startup without expertise in making cars. But with their unique designs, they have seen a boom in sales and become highly popular.
Nio’s EV sales were great in 2021, notwithstanding the global chip shortage. The company continues to see immense success with their electric vehicles even during these difficult times as they continue along on a path of sustainability and innovation that will shape future automotive technology for years ahead
Nio stock plummeted last month, leading to a drop in overall share value. The price has since recovered slightly. But it remains well below the all-time high from January 2021 and is not seeing any positive price momentum for many months.
Solid Growth, Even during Trying Times
The future of electric vehicles is promising, with China leading its large market share and high demand for these cars. However, it is important to note that there is still a long way to go before becoming mainstream and competing with gas-powered vehicles.
Electric cars are excellent investments, but they are not without risk. Investors must do their research before investing in these stocks, as many factors determine whether or not an investor will make a profit on their investment.
From a fundamental perspective, Nio’s financial position has significantly improved since their share plunge. They’ve seen top-line gains and are still cutting losses. The EV wars are heating up as battery innovations bring more runway for growth. In the short term, Nio faces a negative headwind because of its dependence on chip supply chains that the pandemic has disrupted.
The stock is at a low point right now, but it remains a promising and high-growth EV stock.
Nio had 9,652 deliveries in January which is a 33.6% increase from the previous year and a significant drop from December’s figures where it sold 10,489 vehicles. Rival XPeng (NYSE:XPEV) delivered 12,922 electric cars in January, decreasing from December. That said, it still represents a 115% increase year-on-year.
Xpeng and Nio are facing the chip shortage in different ways. Xpeng is looking out for other sources, while Nio is trying to leverage technology to get back on the grind while they still can. However, it is weighing down on their results.
External Factors Weighing Down the Chinese EV Maker
The shortage of chips has led several automakers and tech companies worldwide to cut or indefinitely suspend production for their products to be more affordable. This is especially notable with the auto industry, which has a significant chunk of its supply businesses using these chips in almost every part of their vehicles.
On a brighter note for Nio, China’s automotive market is making a comeback, increasing 0.9% in January from a year earlier to 2.53 million vehicles, according to CAAM. The market had been struggling after dropping for eight straight months, coming into the report of January data.
An additional factor is also weighing down the stock on a broader scale. Sales of new energy vehicles in China fell sharply last month after the government cut subsidies for these vehicles. NEV sales in China have seen a sharp decline in January, falling 18.6% month-on-month after the cutback of subsidies for NEVs by 30%. December was an incredible month for sales as buyers rushed to get their hands on products before the rate cut took place.
Unprofitable companies such as Nio will need to pay more interest on their loans in order to keep up with the increasing costs of business. This causes profitability issues that can end up hurting the company’s value. Nio lost $835.3 million in the third quarter of 2021, which is up substantially on a sequential basis. It becomes increasingly challenging to run a company that is still losing money when interest rates increase. Hence, this is another issue pushing the stock down.
What Does the Future Hold for NIO Stock?
Nio has a new technology platform it’s developing, and they intend to release products based on it in 2022. And at least three more NT2.0 models by 2023. The ET7 is a large luxury sedan that competes with Tesla’s (NASDAQ:TSLA) Model S sedan. In 2022, the company believes it will be delivering over 10,000 monthly ET5 midsize premium sedans.
Nio and Nreal have stated they are partnering on new AR glasses with their car, the ET5. Electric vehicles are coming out any day now, according to the company. Pre-subsidy prices will start at 328,000 yuan ($51,250) for cars with a battery. And passengers must purchase goggles separately.
The ET5 is their second sedan to come to market, but the company’s first sedan, the ET7, comes at a higher pre-subsidy starting price of 448,000 yuan but hasn’t started deliveries yet. Deliveries of the ET7 are set to begin in March.
Newly released models will help drive the stock’s price higher, leading to growth and breaking free of stagnation.
What if NIO Stock Is Delisted?
There is no fundamental shift in the EV market. However, shares of US-listed Chinese companies that focus on electric vehicles for sale in the United States face the hammer due to a very important reason.
Investors are not fans of uncertainty. The waters surrounding U.S.-listed stocks in China have been muddied by recent events, making it difficult for investors to predict what will happen next with these companies and their stocks. This US-China Trade War is an interesting matchup that we’ll have to wait and see how it pans out.
Didi (NYSE:DIDI), the Chinese ride-hailing company, did not expect this backlash after announcing its plan to delist from the New York Stock Exchange. However, it is an example of how regulatory activity can sharply affect Nio’s results.
XPeng, Li (NASDAQ:LI), and NIO all listed stock in the US. In addition, XPeng and Li are listed on the Hong Kong Stock Exchange. However, NIO has not yet applied for a listing.
U.S.-listed stocks could be transferred to Hong Kong and lost as American depository receipts (ADRs). This would leave investors trading an ADR with underlying stock on the Hong Kong Stock Exchange, located on that exchange but domiciled out of America. Investors who own shares in a company will still trade them. Ownership does not change for investors; they are simply subjecting themselves to only one set of laws instead of another (in this case, Hong Kong rather than the US).
Hopefully, the US and Chinese securities regulators can work it all out to prevent further trading volatility that may bubble up into another dot-com era crash like the one we experienced in the 2000s. Considering the money involved, cooler heads should prevail.
The Bottom Line
NIO investors have experienced a bumpy ride.
The bulls hope that the Chinese EV market will be a good investment in the future and are investing their money, while the bears still think that there is uncertainty ahead for Nio.
However, the Chinese government has been relatively aggressive in enforcing economic policies, which is happening right now. Investors around the world are waiting anxiously for what will happen next.
With China being a world leader in electric vehicle manufacturing, it’s no surprise that the country would have an outsized influence on this emerging technology. But Nio is looking past its borders for growth — already expanding abroad with ventures into Norway and five other European countries in 2022. Plus, Nio has a close relationship with a local Chinese government, Hefei, city, and capital of Anhui Province.
As the EV market grows rapidly and competition intensifies, Nio can be a positive long-term investment. Investing in Nio shares today is likely to pay off because of the company’s impressive growth numbers and outlook.
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.