After its incredible 1,100% rise in 2020, NIO (NYSE: NIO) stock has hit the brakes. While 2021 saw a sharp slowdown in growth, 2022 has seen the stock pegged back by 36%. In the last 12 months, it’s down 45%.
This isn’t good news for NIO investors who, following 2020, may have thought the Chinese electric vehicle manufacturer was about to follow in the footsteps of rival Tesla.
However, now trading for above $20, will it be able to stay there and progress further?
The story in 2022
The main reason for NIO’s large fall this year is inflation. Rates have spiked globally. And as a result, many growth stocks have taken a hit. This isn’t uncommon in volatile times like these. And this is because investors look for ‘safer’ alternatives than these riskier equities. To add to this, supply chain issues and China’s zero Covid strategy have also halted production at times this year.
Despite this, the business still posted some strong results in Q1. Deliveries were up 28.5% year on year to 25,768, while vehicle sales rose nearly 25% to $1.5bn. Total revenues also grew by 24.2%. However, gross profit did fall by 6.9%.
More widely, an important factor regarding NIO stock is the heightened push to an electric world. And I see this taking one of two directions.
Firstly, it’s inevitable that more governments worldwide will expand their emphasis on a transition fuelled by renewable energy. It’s already been seen in the UK with a ban on the sale of petrol and diesel cars from 2030. And I’d expect moves like this to become common worldwide.
For NIO, this is obviously good news. With a larger push comes, hopefully, a rise in demand for its products.
However, it could also spell trouble. As the EV space continues to grow, there will naturally be a rise in competition. More established manufacturers such as Ford have already made bold all-electric commitments. Even higher-end manufacturers such as Porsche have electric vehicles available, while Ferrari has plans for 40% of its sales to be from fully-electric cars by 2030.
While NIO has seen tremendous growth in the past, this could slow as we see more of the competition targeting a slice of the lucrative market.
Despite this, NIO does have tricks up its sleeve that could keep it ahead of the curve. For example, its battery-swapping technology allows users to swap empty batteries for new ones in a matter of minutes. Should it keep producing cutting-edge technology like this, NIO may be able to keep ahead of competitors.
So, where will NIO stock go from here?
Well, while it may be able to continue its impressive growth due to its innovative nature, I won’t be buying NIO stock today. As inflation continues to bite, I think it could slip further this year. With competition also looking like it’s going to heat up, this is of further concern for me. I’ll be keeping NIO on my watchlist for now.
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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.