It has been a rough year for the Chinese automaker Nio (NYSE:NIO). After reaching its 52-week high in February, the company’s shares tumbled to an all-time low in July. Nio stock has trailed around $3 per share ever since and is down more than 50% in 2019.
Many Chinese stocks have taken a hit due to trade war concerns and the country’s economic slowdown. But it’s not all bad news; China is still the largest global automotive market.
Nio is the leading electric vehicle maker in China, so its low price point could provide an attractive entry point for new investors. However, the company reported disappointing vehicle deliveries in July and U.S. trade war tensions with China only seem to be escalating.
Is Nio a long-term growth stock or should potential investors run for the hills? Here are three things you should know before buying shares of Nio stock.
The Electric Vehicle Market Is Poised to Take Off
The global electric vehicle market is expected to grow by 32% by 2025. In 2018, there were 1.5 million units worldwide. That figure is expected to increase to 10.79 million units.
This is largely thanks to grants, tax rebates, and subsidies offered by the government. Electric vehicles can help curb the pollution and congestion caused by having a higher number of traditional gas-powered vehicles out on the road.
However, China has begun to cut back on these subsidies as the electric vehicle industry becomes more self-sustaining, which could affect Nio’s sales and Nio stock. The same thing happened to Tesla (NASDAQ:TSLA) once customers began losing access to the $7,500 tax credit for electric cars.
Nio Delivers High-Quality Vehicles
Nio was recently recognized as having the highest-quality vehicles in J.D. Power’s China New Energy Vehicle Experience Index Study. The company beat out competitors like BMW and other Chinese automakers to earn this ranking. This is great news for Nio stock because it gives the company greater credibility with new and current customers.
However, Nio recently reported its vehicles deliveries for July and the results disappointed investors. The company delivered 837 vehicles, mostly due to a voluntary battery recall.
In June, the company recalled more than 4,800 vehicles due to faulty battery packs. This impacted the company’s production and distribution capabilities.
Trade War a Temporary Problem for Nio Stock
Wall Street has avoided investing in auto stock in recent months due to trade war concerns. Many automakers are experiencing significant stock declines. And Nio does have several strong headwinds it will need to deal with in the coming year.
Regardless, NIO stock is still a compelling stock to invest in. The company will likely experience a slow season that will in turn affect Nio’s stock price.
Overall, the trade war concerns are temporary and Nio has long-term potential in a growing industry. That makes it a good stock to invest in going forward.
As of this writing, Jamie Johnson did not hold a position in any of the aforementioned securities.
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