For the past few months, Nio (NYSE:NIO) stock has been stuck in neutral. Shares have ranged between $2.90 to $3.20. This has come after quite a bit of volatility. Note that this year, the Nio stock price was once over $10.
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In other words, since the company came public – about a year ago – the experience has been mostly a disappointment. Keep in mind that many hoped Nio stock would somehow be the next Tesla (NASDAQ:TSLA). But so far, the market capitalization is only about $3.3 billion, compared to TSLA’s $43 billion. So yes, Nio has a long, long way to go!
But hey, might there be an opportunity for investors at current levels? Is there a value play here?
Well, there are certainly some positives. If anything, the sentiment is downright horrible. So, there could easily be a nice short-term bounce on any good news.
But some good fundamentals exist here as well. For example, NIO has a knack for designing attractive cars. This not only helps the automaker stand out from the crowd, it also makes it possible to charge premium prices.
Yet NIO vehicles are not just about flash either. They are high-quality machines. Note that recently, J.D. Power named the ES8 model as the best for those in the category for mid-size and large electric vehicles. This is definitely a major validation.
The Downsides
Unfortunately, Nio’s advantages may not be enough. The fact is that the Chinese market is saturated, with over 480 EV companies. What’s more, Tesla will be soon be manufacturing vehicles in Shanghai, which will put even more pressure on Nio.
The situation is reminiscent of the early days of the U.S. auto industry, which resulted in a big shakeout. Only a few companies like General Motors (NYSE:GM) and Ford (NYSE:F) were able to survive.
In the meantime, the macroeconomic environment in China is getting more ominous. The trade war is taking a toll. Plus, various efforts from the government to gin up growth have proven mostly ineffective. Because of this, there could easily be less interest in purchasing high-priced vehicles from companies like NIO (note that an ES8 goes for about $68,000).
Then there have been quality issues. To this end, Nio had a recall for over 4,800 vehicles because of faulty batteries. True, such problems are not uncommon for EVs. But then again, the recall could be a sign that NIO’s reliance on the outsourcing production could be risky.
Next, production has not been inspiring either. In July, the deliveries were a mere 837 units. While a big factor for this was the recall, it’s still important to keep in mind that production has been on a steady decline since the fourth quarter.
Finally, Nio continues to burn through enormous amounts of cash. Even though the company has strong backers, such as Tencent Holdings (OTCMKTS:TCEHY), an equity raise would likely be highly dilutive and would probably put even more pressure on the Nio stock price.
Bottom Line on Nio Stock
Again, when it comes to the nearer term, there could easily be a jump in Nio stock. This would likely be the case if – when the next earnings report is issued on September 24 – there is a better-than-expected increase in production.
But when looking over the next few quarters, it will be harder to make a bull case. The competition will only get tougher and there may be another capital raise, making Nio stock a dicey proposition.
Tom Taulli is the author of the book, Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
