Nio (NYSE:NIO) stock can’t seem to catch a break.
Down more than 50% over the past year, including a pullback of nearly 30% so far in 2022, shares of the Chinese electric vehicle maker is now trading at less than $23. The decline is due, in part, to the current bear market and souring sentiment towards Chinese stocks. But it is also due to Nio announcing one piece of bad news after another in recent months, which has continually taken the air out of the stock, leaving it deflated.
Crashes and Lawsuits
The latest piece of negative news to take the wind out of Nio’s sails were headlines beamed around the world that two staff members were killed in one of the company’s test vehicles when it fell from the third floor of a Shanghai parking lot that’s located next to its headquarters. Headlines such as “Two killed as Nio electric car crashes…” accompanied by graphic photos of the destroyed car are not the type of public relations any company wants. Worse, the car crash has gone viral online with Nio’s statement on the crash attracted nearly 80 million views on Weibo (NASDAQ:WB) and generating more than 1,700 discussion posts, much of them negative. The company says it is cooperating with a police investigation into the crash.
On the corporate side of the fence, NIO stock also took a gut punch when it was revealed that the electric vehicle maker is being sued by rival Volkswagen’s (OTCMKTS:VWAGY) Audi division over an alleged trademark violation. The lawsuit from Audi comes as Nio pushes into the European market, having opened its first European showroom in Norway last fall. The Audi lawsuit, which was filed in a Munich court, alleges that Nio has infringed on its trademark by naming two of its models “ES6.” According to Audi the “ES6” name is too similar to its own S6 and S8 model vehicles. Nio is contesting the lawsuit.
Investigations and Lockdowns
The recent car crash and Audi trademark lawsuit would be bad enough all on their own. But they follow news that Nio is under investigation by the U.S. Securities and Exchange Commission over its accounting practices. Apparently, the auditor Nio used to draft its annual report has working papers that have not been inspected or verified by the SEC or regulators in China. That puts Nio in violation of the U.S. “Holding Foreign Companies Accountable Act,” according to the SEC. While this might seem like a minor accounting discrepancy, the SEC investigation was concern enough that Nio listed its stock on the main exchange in Singapore over concerns that it might be delisted in New York over the matter.
And while it tries to wrap its arms around the lawsuits, investigations and crashes, Nio is also having to contend with slowing deliveries due to renewed Covid-19 lockdowns in China that forced its main production plant near Shanghai to cease operations and then operate with restrictions for much of April and May. The company reported that it delivered about 7,000 vehicles in May, up 4.7% from a year ago but well below its manufacturing capacity due to the disruptions caused by the Covid-19 lockdowns. Nio said that its manufacturing is “gradually recovering” from the pandemic-related disruptions.
Owing primarily to the lockdowns in China and persistent inflation, Jeffries Financial Group (NYSE:JEF) lowered it forecast for worldwide electric vehicle sales this year to 8.7 million from 9 million previously in another blow to the entire EV sector.
Wait On Nio Stock
It’s been all doom and gloom for Nio and its shareholders during the current second quarter. While the company continues to be a leading electric vehicle maker in China and is viewed, rightly, as a legitimate challenger to global leader Tesla (NASDAQ:TSLA), the spate of bad news related to the company in recent months has been astounding and conspired to keep Nio’s share price depressed. As a result, investors should wait until the storm clouds part and some sunlight shines on the company. Right now, NIO stock is not a buy.
On the date of publication, Joel Baglole 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.