Year-to-date, shares in the company have fallen by around 50%.
However, NIO stock is also incredibly volatile, which I believe reflects shaky investor sentiment towards the business.
Cautious about investing
I think it is quite easy to understand why some investors may be cautious about investing in this company.
for one, the business is a revolutionary EV enterprise. It has developed a system of swapping out batteries in its cars, allowing consumers to drive for longer without having to wait to recharge.
It is also looking to more than double production over the next two years. With the backing of one of China’s largest car producers, which is majority-owned by the government, the firm has the resources and the connections needed to drive this expansion.
As the Chinese EV market is still in its infancy, I think the enterprise has tremendous potential to capitalise on the growth of the market over the next 10 years, or so. As long as the company continues to invest in its product and development, I think the sky is really the limit for this business.
Nevertheless, I cannot ignore the challenges facing the company today. The EV space is incredibly competitive, and it is only becoming more so. The corporation will have to work flat out to maintain its market share.
NIO stock delisting
On top of this, regulators in China and the US are threatening to clamp down on Chinese companies listed in New York.
This is probably the most considerable risk to NIO stock. It could be one of the main reasons why investor sentiment towards the business is so shaky.
Indeed, it will not take much for policymakers to change their view of the business. And it is impossible for me to say how much the enterprise could be worth in this situation.
If it is not allowed to trade in New York, the stock could fall to zero. Clearly, that is not a situation any investor ever wants to face.
However, I think policymakers will try and avoid this worst-case scenario. But we cannot rule anything out. And considering these factors, while I believe the business does own some great technology and has tremendous growth potential, I think the stock will remain volatile.
The bottom line
What’s more, I also think it is likely that investors will continue to sell the business until there is more clarity around the regulatory situation. This could be years before sentiment improves.
As such, I am not a buyer of the stock today. I think there are plenty of other companies in the EV space that would make better additions to my portfolio, considering all of the risks outlined above.
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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.