NIO (NYSE: NIO) stock has been one of the market’s biggest winners over the past two years. Since the beginning of 2020, shares in the electric vehicle (EV) manufacturer have jumped nearly 1,000%.
Unfortunately, most of these gains came last year. Over the past 12 months, the stock has fallen 22%. And as concerns about the state of the global economy, China, and the EV space continue to build, I think the stock might fall further in 2022.
Risks facing NIO stock
I am incredibly impressed with NIO’s technology. Unlike other EV producers, the group’s cars are powered by replaceable battery packs. This means they are easy to swap on long journeys, allowing users to extend the range in just a few minutes.
While this technology is revolutionary, numerous other organisations are also trying to edge in on NIO’s space. Meanwhile, the company is fighting for market share with larger peer Telsa. Its dominant rival is on track to produce around 1m vehicles this year and is targeting the production of 20m cars per annum by 2030.
NIO’s output will only be 240,000 vehicles a year, up from 120,000 units after it doubles the capacity of its plant in the eastern city of Hefei. Management is targeting an output of 600,000 units a year by the end of 2022.
If the corporation can hit these production forecasts, I think the market will take a fresh look at the enterprise. And if it can edge closer to earning a sustainable profit, the company’s value could potentially increase substantially from current levels.
Still, NIO is struggling to catch up to Tesla’s production, and it is only going to become harder for the group to expand sales as the market for EVs becomes more competitive.
Challenges begin to mount
On top of these risk factors, I am also worried about the growing war of words between China and the US. This could have a significant impact on US-listed Chinese equities.
And that is without considering the winding down of quantitative easing by the Federal Reserve. This is already having an impact on inflated growth stock valuations as investors revisit their valuation models.
These challenges could all have an impact on NIO stock in 2022. As the company is not yet profitable, it is also difficult for me to value the stock and estimate how much it could be worth. That means I have no benchmark to hold on to if the shares should suddenly drop.
With this being the case, I will not be buying the stock for my portfolio anytime soon. I think the risks facing the business are increasing, although I am excited about the growth of the EV market.
That is why I would rather buy Tesla for my portfolio. That is my top pick in the sector.
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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