The NIO (NYSE:NIO) share value has plunged from a excessive of $63 on 9 February to $39 at the moment. It was solely value $3 a share two years in the past. As an investor who believes within the electrical automobile (EV) revolution, it’s a inventory I’ve had on my radar for a while.
I’m all the time cautious of rocketing share costs based mostly on sentiment, reasonably than fundamentals. However buyers appear have have priced in fears of semiconductor shortages and regulatory dangers. Ought to I now purchase the NIO share value dip?
NIO development potential
I feel NIO has robust development prospects, if its 2021 Q2 report is something to go by. It reported revenues of $1.3bn, a rise of 127% in comparison with Q2 2020. In the meantime, losses fell from $178m to $117m. It delivered 21,896 vehicles, greater than double the ten,331 offered in the identical quarter final yr.
It’s additionally possible that gross sales had been constrained by the worldwide semiconductor scarcity. If that is resolved subsequent yr, gross sales might rocket even larger. The corporate can be turning into standard for its replaceable battery packs, which imply that NIO automotive homeowners should purchase two battery packs, and swap them out on longer journeys. This solves the vary challenge which prevents many shoppers from shopping for their first electrical automotive.
In Could, NIO entered the European market by establishing an workplace in Norway. CEO William Li expects that the corporate will quickly develop into Germany. NIO’s competitor Xpeng is already promoting vehicles within the Norwegian market, so NIO thinks it could possibly take market share from its established competitor. This might sign important European development.
The corporate just lately signed a brand new contract with Jianghuai Car Group (JAC). JAC has agreed to develop automotive manufacturing capability to 240,000 per yr, indicating how shortly NIO expects gross sales to develop.
NIO share value issues
Progress shares include elevated dangers. There’s no assure that the semiconductor scarcity will abate subsequent yr. NIO might be competing for chips with loads of bigger automotive corporations with stronger shopping for energy. If automotive gross sales are restrained by provide shortages, NIO could wrestle to remain afloat. And a bit perspective is vital for the inventory. Whereas it posted income of $1.3bn final quarter, this was dwarfed by Volkswagen‘s Q2 income of $79.7bn.
Chinese language authorities are additionally turning into uncomfortable with Chinese language expertise corporations being listed within the US. There’s additionally discuss of recent taxes on wealthier Chinese language residents who’re NIO’s goal market.
After which there’s two excessive profile accidents to take care of. On 30 July, a NIO driver was killed after his automotive hit a pier and combusted. Then on 12 August, a well-known Chinese language entrepreneur, Lin Wenquin, died after his NIO crashed whereas on autopilot. The corporate is now being investigated by the China Passenger Automobile Affiliation over its autopilot expertise. Any fault discovered might include crippling authorized and reputational prices.
Time to purchase the dip?
NIO has a price-to gross sales (P/S) ratio of 12. This isn’t dangerous for a development inventory. Nevertheless it seems overvalued in comparison with an automotive large like Volkswagen at 0.5.
NIO continues to be unprofitable, and future profitability is a speculative wager. If development slows for any purpose, the NIO share value might fall additional. Nevertheless, for me, shopping for the dip is well worth the threat.
Charles Archer has no place in any of the shares talked about. The Motley Idiot UK owns shares of and has really helpful NIO Inc. and Volkswagen AG. Views expressed on the businesses talked about on this article are these of the author and due to this fact could differ from the official suggestions we make in our subscription providers resembling Share Advisor, Hidden Winners and Professional. Right here at The Motley Idiot we imagine that contemplating a various vary of insights makes us higher buyers.