Red Flags Rising: The Increasingly Bearish Case for NIO Stock
There’s a slew of fresh data pertaining to China-based electric vehicle (EV) manufacturer Nio (NYSE:NIO). Overall, it doesn’t support a long position in NIO stock. Prospective investors should be cautious now, and Nio’s current shareholders might consider bailing before it’s too late.
Not long ago, I warned that Nio’s shareholders should sell quickly. I’m standing by my bearish outlook, and even doubling down on it. Despite what the company’s management might claim, the bear case for Nio is stronger than ever in 2023.
NIO Stock Is Vulnerable After Data Releases
In the financial markets, traders should follow the data, not their feelings. This is definitely the case with NIO stock, which could fall fast in the wake of Nio’s recent data releases.
First of all, Nio’s three most recent monthly EV delivery updates indicate a steady decline. Specifically, Nio delivered 10,378 vehicles in March of this year, followed by 6,658 vehicles in April and 6,155 vehicles in May. The company tried to spin its monthly updates as positive, but there’s no denying the downtrend in the numbers.
Furthermore, Nio tried to accentuate the positive aspects of its first-quarter 2023 results. In particular, Nio emphasized that its Q1 2023 revenue increased 7.7% year over year. That’s true, but the company’s revenue also declined 33.5% quarter over quarter.
In addition, Nio posted a net earnings loss of 42 cents per American Depositary Share (ADS). This result was significantly worse than the analyst consensus estimate of a loss of 22 cents per ADS and was also deeper than the loss of 18 cents per ADS in the year-earlier quarter.
On top of all that, Nio’s Q1 2023 vehicle margin was only 5.1%. That’s a bad sign, as Nio’s vehicle margin was 6.8% in 2022’s fourth quarter and 18.1% in the year-earlier quarter.
Nio Is a Latecomer to the Price-Cut Trend
Nio’s management is touting the automaker’s recent price cuts. Yet, I perceive this move as too little, too late. All in all, it won’t prevent a long-term decline in NIO stock.
Here’s the scoop. Just days after reporting the aforementioned underwhelming quarterly results, Nio is reducing the “starting prices on all of its models in China by 30,000 yuan ($4,200),” according to Bloomberg. To me, this feels like this is an act of desperation to get Nio’s EV sales up after several consecutive months of delivery declines.
CEO William Li is trying to spin this as an idea that Nio’s management came up with a long time ago. “This adjustment has been discussed internally for a long time,” Li declared.
I’m not buying this spin job. Until now, Nio’s management stubbornly refused to cut the automaker’s EV prices. Suddenly, after posting poor delivery and financial figures, Li is doing what it should have done many months ago. Tesla (NASDAQ:TSLA) started the global trend of EV price cuts, and Nio is just a follower at this point.
The Bear Case for NIO Stock Is Undeniable
Nio is trying to succeed by implementing EV price reductions, but the company is a latecomer to this trend. Investors shouldn’t expect this sudden move to rescue Nio after the automaker posted such disappointing data.
In the final analysis, the bear case for NIO stock is powerful and shouldn’t be ignored. The company’s vehicle margin is declining and its net earnings loss is widening. Therefore, the best policy is, quite simply, not to invest in Nio this year.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
