China-based electric-vehicle maker Nio (NYSE:NIO) continues to suffer. A rally that briefly took Nio stock above $10 per share in March came to a screeching halt following earnings.
Now, on top of increased competition and mounting losses, worries about its status in the U.S. market following tariffs have added to the uncertainty. The recent lows could set up a short-term trade in NIO. However, geopolitical risks will likely make it difficult to sustain a rally regardless of what happens with tariffs.
The Pain Intensifies for Nio Stock
Heightened tensions in the U.S.-China trade war present new challenges for this so-called Tesla (NASDAQ:TSLA) of China. The dispute continues the massive slide Nio stock saw in March following its quarterly report. As a result, NIO shares fallen below $4.40 a pop, setting new 52-week lows.
Many factors could explain this slide. Our own Bret Kenwell mentioned the “Elon Musk factor” is missing from Nio. The force of Jack Ma’s personality turned Alibaba (NYSE:BABA) into a $440 billion company. ASuch an advantage might help Nio stock, currently valued at about $4.55 billion.
Financials, Geopolitics Hamper NIO
However, I think other factors have weighed on the equity. At time of writing, Wall Street expects the company to lose $6.08 per share this year. That estimate came before the latest tariffs took effect. For this reason, investors should probably expect these projections to continue falling.
Granted, prospective buyers in hot tech companies do not necessarily care about years of projected losses. However, most market participants know that American investors cannot directly own Chinese stock. Consequently, the Cayman Islands-based holding companies which represent these Chinese firms tend not to bring these elevated multiples.
The stock of Alibaba has always traded at a discount to Amazon (NASDAQ:AMZN). Likewise, Baidu (NASDAQ:BIDU) has not seen multiples as high as those achieved by Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG). With larger firms trading at discounts to U.S.-based peers, traders should not expect NIO to ever match Tesla’s multiples.
Nio Stock Is a Trade, Not a Buy
Moreover, recent history has shown trade wars tend to hurt Chinese stocks more than they do American equities. This also holds true for NIO when compared to TSLA. Both companies released disappointing numbers. However, Tesla has lost just over 6% of its value since its previous earnings report less than three weeks ago. On the other hand, Nio stock lost just over 47% of its value three weeks after its last report. Thanks to new tariffs, it has hemorrhaged more than 57% since it announced earnings.
With this sharp decline, my InvestorPlace colleague Tom Taulli says that Nio stock could make a good trade. Given the massive drop over the last two and one-half months, I can see the stock making a partial comeback. The lows will probably attract bottom-fishers. That move could even accelerate when NIO releases its next earnings report on June 4 after the bell.
However, most investors lack the insights and instincts to play such moves. For those who would rather invest than trade, I see no reason for owning NIO stock here and now.
Final Thoughts on Nio Stock
No matter what happens with the U.S.-China trade dispute, geopolitical risks and competitive factors will reduce Nio stock to little more than a trade. Investors slammed NIO after its earnings report in early March. Since then, it has continued to slide. This decline picked up some speed with the latest rounds of import duties that the U.S. and China have imposed on one another.
Under these conditions, NIO offers little more than the potential for a dead-cat bounce at its current levels. Whether investors want a stake in China or an electric-car play, they will probably earn higher returns in other equities.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.