Due to external economic factors and issues with production, NIO (NYSE:NIO) has had a tough year. Shares of the EV giant are down 41% in the year thus far. This week, NIO stock benefitted from the news that Toyota (NYSE:TM) and others are slowly resuming their production in China after temporary closures.
Tesla (NASDAQ:TSLA) resumed production at its Shanghai plant on Monday after a three-week stoppage. Volkswagen (OTCMKTS:VWAGY) has restarted production as well.
The move comes as a breath of fresh air for NIO and other Chinese EV companies struggling with their production schedules due to the Covid-19-related disclosures and other factors. NIO stock dropped sharply a few weeks ago after stopping production due to Covid-19-related regulations.
It added to the company’s woes; Nio’s stock price has been plunging for over a year, and the company faced severe competition throughout its lifespan in the car market. Tesla, Volkswagen, Li Auto (NASDAQ:LI) and XPeng (NYSE:XPEV) are just a few of their competitors looking to take away market share from NIO.
Last year, NIO had to slash its delivery forecasts because of the semiconductor chip shortage. Chip shortages are likely to last until 2022. An analyst at JPMorgan told CNBC that global semiconductor production would continue to struggle this year. But technology advancements and increased supply should allow things to improve despite demand being high. Although timelines are unclear, mid-year onwards is when JPMorgan thinks the situation will improve.
Finally, although delivery numbers are healthy, NIO isn’t faring too well compared to fellow Chinese EV companies. That is also weighing down investor sentiment.
Is NIO Stock a Buy?
Electric vehicle companies saw considerable drops in stock prices, making them highly appealing and cheaper stocks. However, it is important to pick and choose wisely in this space since picking a dud may lead to massive losses. Take the example of Workhorse (NASDAQ:WKHS), which specializes in U.S.-built electric pickup trucks. The company is still recovering from losing a United States Postal Service contract worth more than $6 billion.
But in the case of NIO, several things are going in its favor that makes it a good long-term investment. First, the EV company is releasing three new models this year based on its Nio Technology Platform 2.0, bringing its total number of releases to six.
In addition, the company continues to grow at a healthy pace. In 2021, NIO delivered 91,429 cars. It was an impressive increase of 109.1% from the previous year. Plus, Nio is becoming more profitable, which isn’t surprising. Gross margins have soared over the past few years.
As production starts ramping up in China, all signs point to NIO stock recovering before the end of the year.
On the publication date, Faizan 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.
