There’s Too Much Working Against Nio for Comfort

NIO stock - There’s Too Much Working Against Nio for Comfort

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Like most investors, I’m a fan of beaten-down stocks because as long as it’s a good company, there can be some great value to uncover. And I do like Nio (NYSE:NIO). But even I’m gonna stay away from NIO stock at this point, despite the ridiculously low price.

It was less than three months ago when I said that a depressed Nio stock price could be a good opportunity. At that point in the calendar, Nio was down 36% in the first seven weeks of the year. But analysts were still humming a bullish tune, with potential upside of 140%.

What’s happened since then? The bulls have gone into hiding and the bears are out in full force.

Nio stock dropped another 33% since I wrote my last column. Now it’s down a whopping 58% in 2022, and 64% over the last 12 months. The one-time darling of the electric vehicle crowd is trading at its lowest level since August 2020.

Nio sales in April were down 49% from the previous month, delivering only 5,074 units, and were down by 29% on a year-over-year basis.

Semiconductor chip shortages and supply chain issues took a lot of wind out of Nio’s sails. The company recently halted production on weekends and limited operations during the week, citing shortages from suppliers.

Then there’s the ongoing tension between Beijing and Washington, which is leading to threats that Nio and other Chinese stocks could at some point be delisted on U.S. exchanges.

And you can’t overlook the resurgence of Covid-19 in China, coupled with Beijing’s strict no-Covid policies that triggered lockdowns in dozens of Chinese cities. That’s been a problem in particular recently, according to Morgan Stanley analyst Tim Hsiao, who said investors should carefully watch for reports of Covid-19 spread following China’s May holidays.

I predicted that Nio would show some solid profits for investors this year. But now I’m nowhere near as confident. Sure, Nio could manage to stop the bleeding. But it’s going to take time – lots of time – for NIO to even think about getting back to the $50s. And as long as Beijing is prone to shut down communities in its aggressive strategy to limit the spread of Covid, then Nio production will always be threatened.

The bottom line? Snap up NIO stock if you plan to hold it for five or 10 years, and you should make a profit. But if you are looking to boost your portfolio for the next few months, a Chinese EV company is the last place you want to be looking.

On the date of publication, Patrick Sanders 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.

Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders.


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