Stocks to buy

Nio Will Struggle Until Supply Chain Problems Are in the Rearview

I admit to thinking I was going to be writing a different article about Nio (NYSE:NIO). The company recently reported earnings and it seemed like that might be just the tonic the electric vehicle manufacturer would need to push its stock higher.

A Nio (NIO) sign outside of the company's facilities in Shanghai, China.

Source: Andy Feng /

But despite posting solid numbers — which has become a regular occurrence — NIO stock continues to be denied its breakout opportunity.  

One reason for investor hesitancy is the company’s forward guidance. Specifically, Nio is saying that it may be difficult to continue beating estimates in the fourth quarter and perhaps well into 2022.

That’s because Nio will not be immune to the supply chain challenges that are befalling the world. 

Another reason is that investors have turned away from Nio. This is because Chinese stocks in general have fallen out of favor.

Also, the EV sector continues to give investors a case of shiny object syndrome. And there is no shortage of candidates. Most recently, investors are eyeing the upcoming IPO for Rivian (NASDAQ:RIVN) — but before that, Lucid Motors (NASDAQ:LCID) made a run.  

As 2022 approaches, there will be other startups such as Fisker (NYSE:FSR) that will move closer to delivering their first products. That means impatient investors will want to see more from Nio.  

And that leaves me with this thought. Whether you’re a bull or a bear on Nio doesn’t really matter right now.

And that’s the biggest headache that the current supply chain bottleneck is creating for investors attempting to perform their due diligence. Until we know how transitory the supply chain problem is, it will be hard to find a fair price. 

The EV Infrastructure Is Being Built 

The electric vehicle (EV) race is getting charged up. The recent infrastructure bill will provide funding for America to build out a charging infrastructure.

That will take away one of the key obstacles to widespread EV adoption. And there are many EV companies that are beginning to make good on their pledges to deliver EVs to meet that demand. 

I understand that Nio isn’t going to be one of those companies in the United States. However, the company, which is referred to as the “Tesla of China,” is starting to expand its operations outside of China. 

But for all the success that Nio has enjoyed, or maybe because of it, the bar keeps getting raised. And as I noted above, that has moved investors to begin looking to stocks like Lucid Motors and more recently Rivian to find “the next big thing” in the EV space at a cheap price.

Does that mean that NIO stock may start to look cheap by comparison? That was an idea that Chris Lau gave our readers:  

“Markets lost interest in Nio stock in the last few months,” he wrote. “But the upcoming initial public offering for Rivian and Tesla’s trillion-dollar valuation may change that. EV investors scrambling to find the relatively cheapest stock should look at Nio stock again.”

Don’t Fight the Trend with NIO Stock 

In March, I said that Nio faced the privilege of expectations. By this I meant that Nio is no longer a penny stock that looks headed for bankruptcy. It’s one of the leading names in the EV space. And investors have high expectations.  

When I look at the NIO stock chart, I think there may be an opportunity for traders if the stock has found a floor. That looks to have appeared in May when the stock hit a 52-week low. The stock tested those lows on two separate occasions recently, but for now, that floor looks stable. 

However, that doesn’t mean that NIO stock is likely to head back to its 52-week high any time soon. That may not be what you want to hear if you’ve been carrying a heavy bag since the stock was trading at over $60 a share in the beginning of the year.  

But all hope is not lost. Per MarketBeat, the analyst community remains bullish on Nio and has a consensus price target of $65.90. That would be a gain of nearly 54% from the stock’s current level.  

On the date of publication, Chris Markoch did not have (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 Publishing Guidelines.  

Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for InvestorPlace since 2019.