Will NIO stock keep falling?

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Over the past few weeks, NIO (NYSE: NIO) stock has been on the back foot. Shares in the Chinese electric vehicle (EV) manufacturer have fallen 28% since the end of June. Over the past 12 months, the stock’s returned 117%, so long-term investors have been well rewarded for their patience. 

But it looks as if investors have been selling the shares due to concerns about China’s regulatory crackdown. Chinese authorities have been cracking down on different industries recently. This has had a significant impact on other equities listed in New York. 

So far, NIO has escaped policymakers attacks. Unfortunately, there’s no guarantee this’ll continue. 

Uncertainty prevails

I think this uncertainty could continue to weigh on NIO stock for the foreseeable future. And while it does, it may be the case that investors continue to overlook the company’s fundamental progress and concentrate on regulatory concerns instead. 

That said, it’s impossible to predict share price moves in the short term. In the long run, equities should track the fundamental performance of the underlying business. Therefore, if the EV producer continues to increase output and sell vehicles, in theory, NIO stock should reflect that growth. 

On this front, the company’s facing some short-term challenges. At the beginning of August, management warned that the global semiconductor shortage might impact production for the year.

The Beijing-based carmaker cautioned that it might lack the semiconductor stockpile to meet its target of assembling 7,500 EVs in the second quarter. 

This seems to be another reason why investors have been selling NIO stock. With a market value of more than $62bn, investors are expecting a lot from the company. If the corporation fails to meet these lofty growth expectations, the market may re-value the stock lower. 

Another challenge the company faces right now is financing. Supply chain disruptions are wreaking havoc with the firm’s finances. To that end, it recently announced it would be looking to sell as much as $2bn in shares to bolster its balance sheet. 

It’s also considering another listing in Hong Kong, which would raise additional funding. 

The outlook for NIO stock

Considering these near-term challenges, NIO stock could certainly continue to fall over the next few weeks and months as investors digest this negative news.

Unless there’s a significant positive update from the company, these developments will only add to the uncertain regulatory environment. 

Even though the company has the potential to become one of the world’s largest EV manufacturers, I wouldn’t buy the stock for my portfolio.

I think NIO is facing multiple challenges, which it may or may not be able to overcome. There are plenty of other carmakers available for me to buy for my portfolio which don’t have these same sort of issues. 

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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended NIO Inc. 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.