The Nasdaq Golden Dragon China Index, which measures U.S.-listed Chinese stocks, has declined 22.2% over the past month because the Cyberspace Administration of China admonished ride-hailing giant Didi Global Inc. (DIDI) for breaching national security with its data management, thus causing investors to lose some faith in Chinese stocks. Consequently, NIO has declined 15.3% over the past month. Furthermore, NIO reported a 183% year-over-year increase in its net loss to $744.10 million for its fiscal first quarter despite a surge in its vehicle deliveries. A current semiconductor chip supply crunch is expected to continue affecting NIO’s product deliveries in the coming quarters. Given the company’s weak growth potential, we think it looks overvalued at its current price level. NIO’s 12.57x forward Price/Sales is 881.9% higher than the 1.28x industry average. NIO closed yesterday’s session at $41.84, which is 37.5% lower than its 52-week high.
While the semiconductor chip shortage is putting pressure on automobile companies worldwide, rising demand and better production capacity should drive growth for some of the global leaders in the space. We believe fundamentally sound auto manufacturers Volkswagen AG (OTC:VWAGY), Honda Motor Co., Ltd. (HMC), Isuzu Motors Limited (ISUZY), and Polaris Inc. (PII) are well-positioned to outperform the broader market in the near terms based on their latest developments. So, these stocks are better investments than NIO now.