Time to Bail Out of Nio Stock

• Nio (NIO) offers Tesla (TSLA) luxury without the production volumes.
• The company has stiff competition within China, and those competitors are now exporting.
• Nio will likely remain small, and investors should demand a profit.

At this point in the game, investing in Nio (NYSE:NIO) stock means investing in the Chinese government.

If you bought stock in Nio when China was arranging its bailout two years ago, your investment is in good shape. In March 2020, shares bottomed out near $3/share. It opened May 9, at about $14.

If you got in late in 2020, at the time of the government’s technology crackdown, you’re losing money. Shares peaked at over $61 each at the start of 2021.

As a Nio stockholder, your view is colored by when you got in, and what you believed at the time. Was China’s government the savior of your investment, or did they take you for a ride?

That aside, looking at these numbers and competition, NIO stock probably won’t be going the distance.

Nio’s Numbers

Nio stock trades in Hong Kong as well as the U.S. Results are reported in Hong Kong dollars. These are currently trading at 7.85 HKD to the U.S. dollar. (The Chinese Yuan trades at 6.73 to the dollar, down sharply from 6.37 a month ago.)

At current exchange rates Nio lost about $1.61 billion in 2021, on revenue of $5.5 billion. Revenue was up 138% from 2020. The best news here was about $302 million in positive operating cash flow. Nio has a market capitalization of $49 billion.

Financial results for that first quarter are due May 13. Revenue is estimated at $1.54 billion with a loss of 16 cents/share. That would be an improvement over the last quarter’s 21 cents/share loss, on similar revenue.

The company reported its first quarter deliveries April 1 at 25,768 cars. It delivered 5,074 more in April. Compare this to 91,429 delivered in all of 2021.

Now let’s put these numbers in context.

The Reality

Nio cars are made by JAC Motors in Hefei. JAC makes a full line of sedans, hatchbacks, and pick-ups. Think of Nio as a luxury electric brand for JAC.

Nio says it wants to be “China’s Tesla (NASDAQ:TSLA).” But based on delivery numbers, it’s not China’s Tesla. When you read that it’s coming out with a model “competitive” with the Tesla Model 3, know that it’s only making a few of them. Tesla delivered over 300,000 cars in the first quarter of 2022.

If you want to know what globally competitive means for Nio, look at Norway, Europe’s most competitive electric car market. Nio has gotten into that market with plans to sell 7,000 cars over the next two years. Key to making that happen will be infrastructure, specifically battery swaps, which Nio has pioneered in its home market. The idea is that as a battery’s range drops it can be quickly replaced, and the whole car serviced.

If Nio can make it in Norway, the argument goes, it can make it in the U.S. But there will be a lot of competition, including Chinese competition. Geely (OTCMKTS:GELYF), which delivers as many vehicles in China as Tesla does electrics worldwide, now owns Volvo and has a luxury electric brand called Polestar taking orders in the U.S.

The Bottom Line on NIO Stock

Nio has a high public profile in U.S. markets because it came to the New York Stock Exchange in 2019.

That’s not the same thing as being China’s Tesla.

Nio is a luxury brand whose cars are being made by a state-backed company. It aims to export numbers measured in the thousands, while Tesla plans to produce numbers in the millions.

While Nio is slowly ramping up its export infrastructure, better-capitalized rivals in China are doing the same. As is the rest of the auto industry worldwide. Its volumes do not justify the $49 billion market cap.

If you have a profit in Nio stock now, take it. If you don’t, I don’t think it likely you will ever see one.

On the date of publication, Dana Blankenhorn held no positions in companies mentioned in this story. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.