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Nio Remains a Buy for the Long-Haul Despite Production Troubles

NIO stock - Nio Remains a Buy for the Long-Haul Despite Production Troubles

Source: Andy Feng / Shutterstock.com

China’s latest coronavirus outbreak is crippling the country’s automobile production and sales, spelling more trouble for industry giants such as Nio (NYSE:NIO).

According to the China Passenger Car Association (CPCA), the latest outbreak of the deadly virus will continue into May, resulting in at least a 20% to 40% loss in production. The areas where the virus has broken out again are shutting down due to supply-chain bottlenecks. The CPCA states that vehicle sales during the first couple of weeks of April declined by more than 40%.

The latest virus cases began in March. Authorities have been proactive in implementing strict control measures. Nonetheless, these measures have hurt the Chinese economy and have echoed through supply chains worldwide. Shanghai recently reporting zero new infections outside its quarantine zones in two districts. However, they also report that tough restrictions will continue as case numbers also continue to rise.

The consequences of China’s response to the virus have forced Nio and other automakers to suspend production. Nio, in particular, has recently raised prices for a few of its car models and suspended production. The timing has been dreadful since the company was looking to ramp-up production.

Naturally, the resultant negative sentiment surrounding Nio has weighed down its stock price. In the past 30 days, NIO stock has lost almost 17% of its value. Moreover, with other macroeconomic headwinds in play, the stock is likely to struggle in the interim.

However, Nio’s long-term case remains firmly intact on soaring electric vehicle demand. Moreover, it has a colossal cash balance of $8.7 billion, giving it plenty of wiggle room to navigate current challenges.

On the date of publication, Muslim Farooque did not have (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

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.

Article printed from InvestorPlace Media, https://investorplace.com/2022/04/nio-stock-remains-a-buy-for-the-long-haul-despite-production-troubles/.

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