As the NIO share price falls, should I buy?

A stock price graph showing declines, possibly in FTSE 100

Although up 160% over the past 12 months, 2021 has seen a 30%+ fall in the NIO (NYSE: NIO) share price. The tech sell-off accelerated a decline in the price of the electric vehicle producer, but after a recovery from May to June, the shares have once again dipped off. NIO is down 13% in the past five days. With a stock many believed could be the next Tesla, does this fall in price present me with an opportunity to grab a bargain? Let’s take a look.

NIO crash

I stated above how the price fell earlier this year due to the tech sell-off, but here I want to focus on why there has been that decline over the past week. This is mainly due to a fatal crash in China earlier this month after a driver activated NIO’s Navigate on Pilot feature. The stock plunged over 5% on Monday as a result. This is not the first time an incident like such has occurred with NIO vehicles, highlighting that the relatively new producer continues to have problems with production standards. For investors, this will most certainly present a risk. It might be ‘safer’ for me to go with a more established business, such as competitor Tesla is one point I’d consider before buying? Issues like this inevitably provide a setback for the firm, stunting development.

Latest results

With this said, NIO certainly seems to be growing at an incredible rate. For Q2 of this year, deliveries were up 111.9% from Q2 2020, to nearly 22,000 vehicles. Vehicle sales were up 127% from the second quarter of 2020, while total revenues were also up by the same amount. This is clearly a boost for the firm, and if this growth rate continues, I’d expect to see a rise in the NIO share price in the future.

Another positive in the latest results is that Q2 saw a 34.2% decrease in losses from operations year-on-year. But the net loss for the period was $91m. For me, the fact NIO is unprofitable is an issue. It doesn’t allow me to gain a true sense of the company’s value.

A further complication may be the recent actions of Chinese policymakers targeting certain organisations. As my colleague Rupert Hargreaves highlighted, there’s always the risk that NIO could be the next target. If this were to occur, there would likely be a drop in the share price. 

Should I buy?

The crash is an alarming issue and highlights how, as a new company, NIO is continuing to find teething issues with production. Yet we’ve witnessed the same issues with more established producers, such as Tesla. I think the Q2 results provide a huge boost, showing that NIO is moving in the right direction. A continuation of this could lead to a major rise in the share price. However, what really concerns me is the current unpredictability of Chinese policymakers. While I hold NIO in my portfolio, I’m putting off buying more shares until this situation settles. Although it’s a potentially cheap opportunity, I think some other investors may feel the same way, hence the decline in price.

The post As the NIO share price falls, should I buy? appeared first on The Motley Fool UK.

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Charlie Keough owns shares of NIO. The Motley Fool UK owns shares of and has recommended NIO Inc. and Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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