After falling to a low of around $33.40 per share at the beginning of October, the NIO (NYSE: NIO) share price recently rallied above $43.
However, following its third-quarter earnings report, which was released overnight, the stock has now fallen back below $40.
Could this be an opportunity I should take advantage of?
NIO share price declines
The electric vehicle (EV) manufacturer’s third-quarter figures were a mixed bag. The company had already informed investors that production this year was going to come in below initial expectations. Like many other vehicle makers, NIO’s production has been hobbled by the global semiconductor chip shortage. This was clear in the third-quarter numbers.
NIO sold just 3,667 vehicles in October, down from 10,628 delivered in September. The combination of the global chip shortage coupled with the closure of some manufacturing facilities for maintenance were the main reasons behind this decline.
What’s more, management does not expect output to grow substantially in the final quarter of the year. The company is forecasting flat vehicle sales compared with the third quarter. The corporation expects fourth-quarter sales of about $1.5 billion, below Wall Street’s $1.7bn estimate.
Still, despite this downbeat outlook, the group beat expectations in the third quarter. Sales totalled $1.52bn compared to an initial projection of $1.46bn. Meanwhile, the company reported a loss per share of -$0.06, compared to Wall Street’s estimate of -$0.10.
I think these figures show that while NIO is heading in the right direction, global supply chain disruption is a thorn in the company’s side. With some analysts expecting the disruption to last until the end of 2022, and possibly into 2023, it seems likely the cloud will continue to hang over the group for at least the next year.
As such, I do not think it is unreasonable to say that NIO’s growth could disappoint over the next few quarters.
Growth potential
The impact this will have on the NIO share price is unclear at this stage. Investors may look past these headwinds and focus on its growth potential, or the market could focus on the initial disruption.
Personally, I would focus on NIO’s potential. The company’s interchangeable battery pack technology is quite exciting. It has revolutionised the EV space in China and has the potential to repeat this success around the world.
I think it is important to remember that this is still a relatively small business. Major peer Tesla is churning out more than 250,000 vehicles a quarter, or 80,000-plus a month. That is more than eight times higher than NIO’s current output.
Therefore, I would expect the company to encounter some growing pains over the next few years.
With this being the case, I would buy the stock as a speculative investment for my portfolio today. I am excited by the company’s long-term potential and technology. As such, I am willing to look past the short-term uncertainty facing the business.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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