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NIO (NYSE: NIO) stock has been a frustrating investment in recent years. However, it looks like the tide could be turning – last month, the stock bounced more than 50%.
Is now the time to buy shares in the Chinese electric vehicle (EV) manufacturer? Let’s discuss.
Three reasons to buy?
I can see a few reasons to be bullish on NIO right now.
For starters, the company has recently launched a number of slick new vehicles.
One such vehicle is the ET5 Touring. This EV (which looks set to land in the UK next year) is designed to go head to head with the likes of the Porsche Taycan and the BMW i5 Touring.
Secondly, the company just received a major investment ($739m) from an affiliate of CYVN Holdings LLC, an investment vehicle majority owned by the Abu Dhabi Government with a strategic focus on advanced and smart mobility.
This capital will provide the company with a healthy capital infusion. And going forward, NIO and CYVN entities plan to work together to pursue strategic collaborations.
Additionally, China has recently announced a new package of tax breaks for EV buyers. These tax breaks, which will run until 2027, could provide a huge boost for the Chinese EV industry and potentially boost NIO’s sales.
A few big risks
Having said all that, I can also see a few reasons to be bearish here.
One thing that concerns me about NIO right now is that growth has been a bit patchy recently.
For July, the company registered 20,462 deliveries, up 104% year on year.
However, for the three months to the end of June, NIO only delivered 23,520 vehicles. That was less than the figure of 25,059 a year earlier.
These numbers worry me a bit, especially given that rival BYD has seen really strong growth in its delivery figures this year. In the first half of 2023, BYD delivered 1.26m vehicles, almost double the figure a year earlier.
I’m also a bit concerned about the intense level of competition NIO is facing right now from the likes of BYD, XPeng, and Li Auto. As a result of the high level of competition, NIO has been forced to slash its prices. This has negatively impacted profit margins.
Speaking of profits, this is another issue for me. NIO continues to generate large losses, and analysts don’t expect the company to swing into the black any time soon. This adds risk.
Finally, and this is the risk that concerns me the most, there’s the issue that when one buys US-listed NIO shares, they are not actually buying an ownership stake in the company. Instead, they are buying a complicated structure known as a ‘Variable Interest Entity’ (VIE).
What this ultimately means is that the company’s assets can be taken away from investors without any warning or compensation.
Better growth stocks to buy?
Weighing up all of these points, I won’t be buying NIO stock for my portfolio in the near term.
All things considered, I think there are better, safer growth stocks to buy today.
