Why NIO Stock Will Continue Heading Downward
In recent weeks, the Nio (NYSE:NIO) stock slide has continued, following a poorly-received monthly deliveries report
Bullish bottom-fishers and dip-buyers may still believe this is prime time to accumulate a position. Mostly, because of their view that the China-based electric vehicle (or EV) maker will experience a strong growth resurgence later this year.
As you may recall, management is “very confident” that the company can more than double its vehicle sales (from 122,486 to 250,000) in 2023.
I have been highly skeptical that Nio can hit this target, which is a stretch goal at best. At worst it’s wishful thinking.
This skepticism has grown further, after recent statements from Nio’s CEO regarding pricing and competition.
A Conscientious Objector to the EV Price War?
Since Tesla’s (NASDAQ:TSLA) implementation of vehicle price cuts in all markets, including China, analysts and investors have been wondering how competitors like Nio would respond.
After months of speculation, there is now a definitive answer. In an April 17 interview with CNBC, Nio CEO William Li stated that the EV maker is opting out of the industry price war.
Instead, the company intends to compete by providing products/services well worth the higher sticker price.
Namely, the technological features of its vehicles, as well as the unique services (such as battery swapping) that differentiates this brand from the competition.
But while Li is confident that the Chinese EV buying-public will pay up for a better product, investors believe otherwise. Just prior to these remarks, shares appeared to be on the verge of moving back to double-digit price levels.
Yet as Li’s remarks spread around the globe, they sparked the aforementioned continued sell-off for NIO stock.
Again, those in the bullish camp may believe that this is a short-term market overreaction. However, this move was justified.
Not only that, while this development may now be fully absorbed by the market, more bad news may be just around the corner.
Why the Recent Slide May Continue
EV market growth in China is slowing down. Manufacturers like Nio are ramping-up production and introducing new vehicle models. With this, the competition for market share will intensify. Sure, EV buyers do not purchase solely on price.
Yet if Nio remains reluctant to cut prices, chances are it will have an overall negative impact on demand.
This could cause the company falling short of its 250,000 vehicle sales goal. The resultant disappointment will undoubtedly drive another correction in the price of NIO stock.
However, it’s not like what remains of investor confidence will be lost all at once later this year. Over the next few months, as vehicle delivery reports signal that the “growth resurgence” will be less robust than expected, the market will re-price the stock accordingly.
The next repricing may be just a few days away. Pre-market on April 28, Nio reports its latest quarterly results and guidance. If the numbers are as underwhelming as they were last quarter, the stock will stay on a downward trajectory.
Bottom Line
A few days after releasing its latest quarterly results, Nio will also release its latest monthly delivery numbers. Based on the figures released for March (anemic year-over-year sales growth, quarter-over-quarter delivery declines), I’m not too confident that the April numbers will be much stronger.
This news will also likely further call into question the “growth resurgence” thesis that has enabled NIO to hold onto at least some of its gains from the 2020/2021 “EV stock bubble.”
Yes, it’s within the realm of possibility that quarterly guidance beats expectations, Nio crushes it with April deliveries, and subsequent results help to drive an unforeseen comeback.
But given how far this stock has fallen, if an improvement in its fortunes takes shape, there will be plenty of time to enter a position. Until then, play it safe. Stay away from NIO stock.
NIO stock earns a D rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
