With its current negative catalysts, Nio (NYSE:NIO) stock looks to be in for continued trouble.
The Chinese EV manufacturer will release earnings March 24. But the reasons to avoid Nio right now have less to do with fundamentals than more qualitative issues.
The results of that earnings report will matter. But Nio simply has too many negatives against it right now. Those fears and concerns won’t abate quickly. That’s why investors should be very careful with Nio now.
Nio Stock and Delisting Fears
The stock market teaches that individual companies often fall due to forces out of their control. Implications often mean as much as tangible news.
The Securities and Exchange Commission recently named five companies that didn’t meet U.S. accounting and audit standards as reported in an article in Barron’s. Although none of them were Chinese EV firms, the news negatively affected their stocks.
Chinese firms are facing increasing delisting pressure as the Public Company Accountability Oversight Board (PCAOB) continues to insist on access to financial information in Chinese companies listing in New York.
The news is not new at all. The U.S. and China have been engaged in this argument for decades. China sees opening the financial audit records of companies in its country as a matter of national security. The U.S. contends that China is no different than any other country.
The PCAOB is demanding standards compliance out of China. Although the conversation isn’t new there are several forces conspiring to increase pressure on China and Nio right now.
War in Ukraine
China is effectively backing Russia in its war in Ukraine by remaining neutral. The concern is that it has already decided to provide financial and economic resources to Russia. It may now also be considering sending military equipment to Russia, some U.S. sources fear.
Again, Nio is not complicit in any of this. But that is the way of the stock market. Nio will be punished because it is a Chinese firm. Any implication that China is backing Russia hurts Nio by proxy.
Nio Stock in Hong Kong
Nio is now dual-listed. Its shares trade on both the Hong Kong stock exchange and the New York Stock Exchange.
That is only going to fuel increased speculation that it will ultimately delist from U.S. exchanges. On the one hand, the PCAOB is ratcheting up the pressure. That strongly implies that companies including Nio could find themselves in trouble moving forward.
Nio listing its shares in Hong Kong only furthers narratives that one day NIO stock may simply be delisted from the NYSE. And that’s a serious detractor from stock prices.
Externalities abound. And Nio has yet another externality to contend with: inflation.
Spiraling Costs
Inflation hurts vehicle makers of all stripes. Inflation is resulting in higher oil prices. That is hurting traditional internal combustion vehicle manufacturers.
Prices of commodities including nickel and lithium are hurting EV manufacturers, along with other metals. That is placing increased pressure on Nio as well. Elon Musk has been vocal about the issue, and Tesla (NASDAQ:TSLA) is raising prices across its lineup. Nio has less ability to do so, because it simply isn’t as powerful a force as Tesla. That threatens to erode progress it has made by eroding margins.
Takeaway for Nio Stock
Nio faces an onslaught from all sides right now. Nio has proven that it can manufacture cars that consumers will buy. It has done impressively well from a fundamental standpoint. The question is much less about the business right now, though.
All of those aforementioned externalities are the problem. Nio doesn’t have the power to overcome them alone. That’s why investors should stay away and why the equity should trade sideways at best.
On the date of publication, Alex Sirois 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.
