Last year, NIO (NYSE: NIO) stock was thought of as one of the most promising electric vehicle (EV) shares on the market.
The Chinese company was primed to take over the country’s EV market with its attractive battery swapping technology. Initially, the group’s outlook seemed positive as management promised growth and rising demand.
However, over the past couple of months, the outlook for NIO stock has changed dramatically.
The outlook for NIO stock
A couple of factors have been influencing trading in the company’s securities over the past couple of months. The most important has become the regulatory and trade tug of war between China and the USA.
The former is introducing new rules on Chinese companies looking to list in the US. Meanwhile, the latter is introducing new regulations to increase the transparency of US-listed Chinese equities. Chinese regulators are critical of these requirements. A high-profile casualty is DiDi, which is being forced to move its listing from the US to Hong Kong.
Unfortunately, it seems likely the tug-of-war will remain the primary factor driving NIO stock’s performance over the next 12 months. Investors just cannot ignore the political risks involved.
Still, when I look past these risks, I see a corporation that is firing on all cylinders. After a rocky start, production is increasing. It is clear there is a rising demand for the company’s vehicles, although it is struggling to meet this.
While this is an excellent problem to have, NIO’s issues are not all within its control. It cannot influence the global semiconductor shortage and supply chain crisis. As such, it could remain at the mercy of these headwinds for the foreseeable future. Some analysts have speculated that the semiconductor crisis could last until the end of 2023. Only time will tell.
Challenging year ahead
Despite the supply chain issues, I think 2022 will be a year of growth for NIO, but I cannot say the same about the stock. Political issues will continue to drive trading, in my opinion. The market may continue to overlook the company’s operational performance in favour of these more significant headwinds.
Therefore, I am not going to buy the stock for my portfolio in 2022. If there is one thing the market hates more than anything else, it is uncertainty. Right now, there is a lot of doubt surrounding NIO stock, and it does not look as if this is going to shift anytime soon.
Instead of NIO, I would much rather buy one of the company’s peers, such as Tesla. This group is one of the world’s leading EV producers. It comes with its own risks, but is already profitable and is planning to increase output dramatically over the next 12 months. Compared to the Chinese business, it has a whole range of advantages.
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.
