Chinese electric vehicle (EV) maker Nio (NYSE:NIO) has seen its shares take another tumble as of late. On Monday, NIO stock closed down 6.2% on the day. At this point, NIO stock is down nearly 27% in 2021. For investors, that’s a gut-wrenching turn in direction for a stock that delivered a 1,110% return last year. The thing is — unlike in 2019 when a series of bumbles saw shares drop — Nio is doing everything right. Instead, the blame for the poor performance can be found in outside forces.
The latest issue is panic over the potential collapse of Evergrande (OTCMKTS:EGRNF). The spectra of the Chinese property development giant failing hammered many Chinese stocks on Monday. In fact, NIO stock was just one of the casualties. Once again, this latest drop raises a big question. Is it better for investors to just avoid this company for now for fear that the situation will worsen, or has 2021’s ongoing string of events made NIO stock an attractive buy?
Once Again, NIO Stock Gets Hit by an Outside Factor
The story of NIO stock’s poor performance over the past six months has been largely one of outside factors.
The company itself has been humming. Month after month it’s delivered EVs at a blistering pace. Even in August, when chip shortages cut production (more on that shortly), Nio’s EV shipments were up 48.3% year-over-year (YOY). Its BaaS (Battery as a Service) is proving popular and the network of battery swapping stations is rapidly expanding. And speaking of expansion, Nio is adding three new vehicles to its roster in 2022, and is nearing the launch of its international expansion with a sales center in Norway.
Overall, Monday’s drop was attributable to China Evergrande Group. The Chinese property development company is in danger of defaulting on over $300 billion in debt. Fear that a collapse would damage China’s financial system has seen Chinese stocks punished on the markets. But to understand why NIO stock dropped more than 6% on Monday, look no further than China Evergrande Group.
NIO Stock and LI Stock Face Similar Challenges
The other big story for Nio has been the global shortage of semiconductors. The shortage has been great for semiconductor stocks, but painful for auto makers. For the first half of 2021, Nio had managed to largely avoid the production line shutdowns that have been hitting so many automakers. However, its luck has run out.
In August, the company’s YOY growth of vehicles was 48.3%, which was well below the triple-digit growth numbers it had been posting. Citing “supply chain constraints” the company also lowered its guidance for third-quarter vehicle delivery numbers.
Collectively, this external factor has been hitting all auto makers. Rival Chinese EV maker Li Auto (NASDAQ:LI) released its own revised delivery update on Sept. 20. With chip supplier recovery being “slower than expected,” Li Auto also cut its Q3 vehicle delivery guidance. The news of continued chip supply constrains in Nio’s home country only compounded the hit that NIO stock took from the China Evergrande Group concerns.
Bottom Line On NIO Stock
Now, this brings us back to the question of whether you should take advantage of the current weakness in NIO stock. Last week, I wrote that it was a great buying opportunity.
NIO is a Portfolio Grader “B” rated stock, with considerable long-term growth potential, and it’s currently at a 40% discount compared to its February high close. I still believe Nio is on the right track and shares will reward investors with long-term growth. However, given the current events in China and NIO stock’s vulnerability to outside factors, you need to be prepared for some potential short-term volatility. In fact, you may want to see how the China Evergrande Group scenario plays out before pulling the trigger.
On the date of publication, Louis Navellier had a long position in NIO.
Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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