Still Ahead of Its Fundamentals, Nio Shares Could Trend Lower


Previously, investors had off-the-charts optimism for EV (electric vehicle) plays like Nio (NYSE:NIO) stock. But now, Mr. Market seems to be more on the fence about where this sector is heading from here. There’s no denying that prospects remain strong for vehicle electrification. Especially in China, this company’s home market.

NIO stock
Source: Andy Feng /

Growth is certainty still on the menu. But, it may not be the extent that’s still priced into this stock. As the world’s largest EV market went into recovery mode after the initial novel coronavirus outbreak, pent-up demand enabled Nio to go from near-insolvency, and a single-digit share price, to triple-digit delivery growth, and a stock price that hit levels as high as $67.99 per share.

However, sequential delivery growth is slowing down. Quarterly results have come in under expectations. Investors have started to reassess the true value of Nio. And, it may not be over just yet.

If the company continues to fall short of expectations, it’s going to be tough to justify its still-inflated valuation.

So, what’s the end result? I don’t see the company’s share price falling completely back to single-digit levels. But, there clearly room for shares to head further south from here. As the hype behind EV stocks continues to cool, it’s best to stay away for now.

Why Things Could Get Worse for NIO Stock

As I discussed earlier this month, there’s much pointing to Nio falling short of expectations in 2021. Sell-side consensus still calls for revenues to more than double this year. But, given how month-over-month delivery numbers are trending, it may be difficult for the company to hit these numbers.

Month-over-month, delivery growth between December 2020 and January 2021 was moderate at best. And, comparing February 2021 to January 2021, deliveries actually went down. Of course, you can chalk this up to demand cooling temporarily, due to the Chinese New Year holiday. However, in a few weeks we’ll have delivery numbers for March. It’ll be bad news if results for this month underwhelm as well.

NIO stock bulls remain confident it’ll meet expectations for this year. Yet, there’s something else that could mean bad news as the year plays out. I’m talking about competitive risk. Competition continues to heat up in the Chinese electric vehicle market. And, not just from Tesla (NASDAQ:TSLA).

As you may know, Volkswagen (OTCMKTS:VWAGY) is fast becoming an EV powerhouse – including in China. And, the competitive threat of both global names is on top of existing homegrown competition. Xpeng (NYSE:XPEV) and Li Auto (NASDAQ:LI) are some of its more well-known local competitors. But now, even Chinese incumbent auto names like Geely are making a big move into the premium EV market.

What About the Battery Catalyst?

As seen from the risks above, there’s more than enough to push NIO stock toward lower prices. Yet, how about some of the positive catalysts still at play? These factors may help stabilize shares at lower prices. But, don’t count on them helping to fuel a full recovery for the stock.

First off, the battery catalyst. As InvestorPlace’s Brenden Rearick wrote March 22, Nio continues to make progress with its “battery-as-a-service” strategy. This unique approach to a common pain point with EVs (low driving range due to battery limitations), many have held up this factor as a way it could have an edge over rivals.

Secondly, continued rumors of the company kicking off a global expansion. So far, it’s been confirmed the company will start exporting vehicles to the European market later this year. And, the rumor mill is abound with talk of it finally entering the U.S. market as well. InvestorPlace’s Chris MacDonald broke down one such rumor in a recent article.

Sure, both these factors could (in theory) fuel a NIO stock comeback. On the other hand, it’s easy to argue these factors are baked into its current share price. The battery catalyst has been in play for several years. And, with investors betting this is the next Tesla, global expansion has been priced-in as well.

In short, don’t expect a sudden recovery. The many positives still on the table are fully baked-in. But, the negatives? At today’s prices, they’ve yet to be fully accounted for into the stock price.

Bottom Line: Avoid Until We Have More Data

Enthusiasm for Nio may have started to cool. But, I’ll concede we have yet to see the other shoe drop, so to speak. That is to say, it’s too early to say the party’s over fully with this still-hot stock.

Sales could still grow year-over year. But, if it’s not to the levels still factored into the NIO stock price, another move lower may be in the cards. Until we get a clearer picture of what’s next, continue to avoid.

On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.

Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.

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