2 Reasons to Be Bullish on NIO Stock

Stocks to buy
  • Nio (NIO) stock has been falling after the price hike announcement and the suspension of production.
  • The production halt is temporary and many other electric vehicle (EV) makers have also hiked their prices.
  • The dip in Nio stock is a great chance to take your position.
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Electric Vehicle makers in China are having trouble due to the fresh Covid-19 lockdown. Having recently announced a forced halt in EV production, Nio (NYSE:NIO) stock has suffered. The stock tumbled after the announcement since investors assumed that the company will miss production targets. NIO stock went from $23 to $19 over the past two weeks. Once the impact of the pandemic subsides, Nio will have a massive market to cater to since the demand for EVs is only going to expand in the coming years. 

I think the market is overreacting to this move and has a misunderstanding that Nio has completely suspended production. However, this is not the case. Let’s dig deeper into the two reasons you should be bullish on NIO stock.

The Production Halt Was Temporary

The situation is not as bad as it is feared and I think that it is only temporary. Nio was only taking a short production halt and not closing production completely. However, we might see a dip in the delivery numbers, but it could only be for a month and not a consistent dip. According to the management, Nio will still be running but on a limited scale, and the halt is limited to the weekends only. Nio has already resumed production. 

Let’s not miss out on the big picture. Nio could be up and running in the next few weeks at its full capacity since it has not suspended production completely. This is not reason enough for investors to give up on NIO stock. Interestingly, the company reported solid deliveries for March and met the quarterly delivery target. This is reason enough to have faith in Nio’s production abilities.

Nio Is Not the Only One Considering a Price Hike

One thing to keep in mind is that whenever the price of raw material increases, manufacturers will consider a price hike. In this case, the price of lithium is skyrocketing and it has impacted all EV makers. However, Nio is not the only one raising the price of its cars. Tesla (NASDAQ:TSLA) has increased prices several times in the past. Since China is still grappling with the pandemic, Nio will have to pay a higher price for the raw materials and this will have an impact on the cost of production. Nio doesn’t have much choice except to raise the price of its cars. 

Even Lucid (NASDAQ:LCID) is considering a price hike to meet the supply chain and inflation concerns. The automakers who haven’t announced a price hike yet may have to do so in the coming months. Sustaining demand in the competitive EV industry is the key to success and as long as Nio manages to produce and deliver the projected number of cars, it will be able to keep growing. 

Bottom Line on Nio Stock

Nio is suffering more than it should and it is because of temporary reasons. The stock was once trading as high as $55 and is finding it difficult to hit $25 now. However, I believe the stock has solid potential to grow and reap returns in the long term. NIO stock is a long-term play and not a stock to sell when the market is down. Keep holding on to the stock for better returns in the second half of the year. 

UBS analyst Paul Gong has a buy rating for the stock with a price target of $32. The analyst thinks that the time to strike is now and the shares look undervalued at the current level. Further, Martin Heung, a Nomura analyst has a buy rating with a price target of $51.50 on NIO shares. At a price target of $51.50, the analyst gives a massive upside potential. Do not underestimate the potential of the stock to rebound and that will be your chance to make the most of NIO stock. 

On the date of publication, Vandita Jadeja 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 InvestorPlace.com Publishing Guidelines.

Vandita Jadeja is a CPA and a freelance financial copywriter who loves to read and write about stocks. She believes in buying and holding for long term gains. Her knowledge of words and numbers helps her write clear stock analysis.

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