Nio Stock Is Only Suitable for Risk-Tolerant Investors

Nio stock is still a battlefield, but the good news is that its downside going forward may be limited

Shares of Chinese electric vehicle manufacturer NIO Inc. (NYSE:NIO) dropped 2.5% yesterday on what can only be seen as more bad news for the struggling stock. That decline indicates markets were not satisfied with the July delivery data released by Nio. Nio stock was able to recoup those losses today as the U.S. backed off some of its tariff threats in a bid to help domestic retailers ahead of the holiday shopping season. Still, yesterday’s decline of Nio stock price in response to the delivery data doesn’t bode well for Nio stock going forward.

With China's EV Bubble, Nio Stock Straddles Line Between Target and Victim
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“NIO delivered 837 vehicles in July, consisting of 673 ES6s, the Company’s 5-searter high-performance premium electric SUV, and 164 ES8s, the Company’s 7-seater high-performance premium electric SUV and its 6-seater variant,” according to a statement issued by Nio. “As of July 31, 2019, aggregate deliveries of the Company’s ES8 and ES6 reached 19,727 vehicles, of which 8,379 vehicles were delivered in 2019.”

There’s never a good time for bad news, but the downturn of Nio stock came after the shares rallied a bit last month, perhaps giving investors reason to believe a comeback story was in the works. While Tuesday’s headlines indicate a potential thaw in US/China trade tensions, and that’s good news for Nio stock, the trade conflict has consistently proven fluid and capable of changing based on a single tweet by President Trump.

Digging Deeper

As I’ve noted in previous columns, NIO founder and CEO William Li is nothing if not ambitious, and he has to be because China is one of the most competitive electric-vehicle markets in the world. But  Li has also been forthright about the company’s recent struggles, and his comments indicate the selloff of Nio stock yesterday may have been slightly overdone.

“In July we completed our voluntary battery recall for 4,803 ES8s,” said Li in the statement. “During the month, we prioritized battery manufacturing capacity for this effort, which significantly affected our production and delivery results. In addition, some deliveries were pushed forward into June in anticipation of further electric vehicle subsidy reductions that took effect at the end of June.”

So a case can be made that Nio’s July struggles were a one-time event. But on the other hand, because NIO, like its U.S. rival, Tesla (NASDAQ:TSLA), operates in the premium market,Nio stock is highly sensitive to gyrations in economic data and macro forces.

In other words, if China, the world’s second-largest economy shows signs of weakness, it would be reasonable to expect Nio stock price to sink. For now, though, Nio appears to be bullish about its August deliveries, something that Nio stock may not be adequately reflecting at the moment.

“Looking ahead, with battery capacity allocation back to normal, we will accelerate deliveries and make up for the delivery loss impacted by the recall,” said Li. “We expect August to be a much stronger month, and target to deliver between 2,000 and 2,500 vehicles”

The Bottom Line on NIO

When it comes to Nio stock and its ability to rebound, there are myriad factors to consider and that can be off-putting to some investors. There is the trade war, the devaluation of China’s currency, the company’s ability to make good on its delivery targets and more. The flip side is that as any of those situations ease, Nio stock price could rebound.

Another reason for risk-tolerant investors, and I emphasize “risk-tolerant,” to consider NIO  is that Wall Street has basically thrown in the towel on the name.

Most investors are  either ignoring the shares or treat NIO like a candidate for a $1 handle, even though some researchers have a  $5 price target on Nio stock.

As of this writing, Todd Shriber does not own any of the aforementioned securities.

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