NIO (NYSE:NIO) shares have taken a hammering over the past few months, but the company remains one of the most promising challengers to Tesla. The Chinese EV manufacturer’s share price is now down 60% over 12 months.
I actually already own NIO shares. I bought the stock when it slumped to around $14 and didn’t sell when it hit $25. So, now, with NIO shares trading around $12, I must feel pretty stupid, right? Well, as I invest for the long run, I’ve got to expect fluctuations and view them as opportunities. So, is this another buying opportunity?
On the other hand, Tesla shares are currently trading at 29 times projected earnings — that’s the cheapest ever, and the lowest since the company went public in 2010. Maybe I should be looking at Tesla instead!
Why NIO tanked
NIO has been on an impressive growth curve in recent years — it’s certainly Tesla-esque. However, over the past 12 months, the share price has demonstrated extreme volatility, primarily due to reasons beyond the company’s control.
Growth stocks surged during the pandemic. In early 2021, the company had a market cap around $100bn. That’s made NIO very expensive, especially for a firm that was delivering around 20,000 cars a quarter.
And, unsurprisingly, the share price tumbled.
But there have been more challenges. China’s zero-Covid policy has caused factory closures and supply chain blockages throughout 2022. Macroeconomic issues have also pushed battery prices sky high.
And more generally, there are broad concerns about the health of the Chinese economy.
Is this a buying opportunity?
Well, there are several reasons to be positive looking forward.
For one, China has signalled a relaxation of the Covid regulations that have acted like a parachute on the Chinese economy. The reopening of the Chinese economy could propel demand upwards just as it was starting to wane.
The company’s vehicle sales grew 32% year on year and nearly 25% in Q3. The pace of growth is expected to accelerate in Q4. The firm says it will deliver between 43,000 and 48,000 vehicles in the months to December — this would represent year-on-year growth of around 71.8% to 91.7%. Revenue of between $2.4bn and $2.7bn is expected for Q4.
I expect NIO to grow further once the consumer demand in China recovers and as the renminbi recovers against the dollar — this inflates the value of sales when converted into US dollars.
Importantly, NIO has a highly promising range of vehicles. They rival Tesla for range and perhaps surpass the market leader when it comes to tech.
The Shanghai-based firm’s unique battery-swapping tech may also be accelerating the company’s growth into the lucrative European market — the second largest EV market globally.
So, should I buy more NIO stock? Or should I look to Tesla?
Well, NIO is still cheaper than Tesla over several metrics, including the price-to-sales ratio — 2.6 versus Tesla’s 6.7. So, at $12, I’m buying more NIO stock.
