Nio (NYSE:NIO) is losing momentum due to its extreme overvaluation amid the global semiconductor chip shortage and investors’ reduced interest in Chinese stocks following a broad-based crackdown by China on U.S.-listed Chinese stocks. Conversely, we believe global leaders in the auto manufacturing space—Volkswagen (DE:VOWG_p) (VWAGY), Honda (HMC), Isuzu (ISUZY), and Polaris (NYSE:PII)—are well-positioned to capitalize on the industry’s revival. So, these stocks are better bets now than NIO. Please read on.The shares of one of the most popular electric vehicle (EV) manufacturers in China, NIO Inc . (NIO), have gained 241% in price over the past year owing to the growing adoption of EVs in China. However, the stock has lost momentum of late on reduced investor interest in Chinese stocks because of China’s regulatory crackdown on U.S.-listed Chinese stocks and its overvaluation amid a global semiconductor chip shortage.
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.