On what was initially a mixed day in the stock market, a number of high-profile companies are now trading deeply in the red. Among the biggest decliners today is Chinese electric vehicle (EV) maker Nio (NYSE:NIO), which has sunk more than 12% at the time of writing. This move lower in NIO stock comes ahead of the company’s earnings report, which will be released before market open tomorrow.
Unsurprisingly, the major concerns investors appear to be pricing into NIO stock are related to Covid-19 and competition in the EV space. On the Covid front, government lockdowns and aggression toward Taiwan provide for a litany of potential issues in the quarters and years to come.
While Nio has carved out some decent market share in China, the question is how badly demand could be hit over time. After all, Nio is in hyper-growth mode. It’s hard to grow quickly when regulatory and geopolitical forces don’t allow for such growth.
Competition-related concerns are also heating up, with other EV automakers continuing to grow their deliveries. Thus, while Nio posted record deliveries in Q3, the company’s forward-looking prospects aren’t that hot. If competitors are able to eat into Nio’s core market, more doom and gloom could be on the horizon.
Let’s dive more into what investors may want to watch via this upcoming earnings report.
Can NIO Stock Recover Post-Earnings?
Today’s decline heading into Nio’s earnings suggests investors don’t have much faith the company can beat expectations. That said, this does pave the way to a plausible outcome of a nice rally tomorrow, if business is better than expected.
Consensus estimates for revenue and earnings per share are $1.78 billion and a loss of 18 cents per share. This would represent 17% top-line growth, but also a tripling of the company’s net loss from the same quarter a year prior.
Thus, consensus doesn’t look that great, for a company many expected to be profitable by now — and growing its top line much faster. Given the bar is set so low, I do think there’s the potential Nio can rally hard tomorrow. That said, there’s also a significant probability of another plunge if outperformance isn’t seen at all.
Thus, NIO stock appears to be a risky bet many investors aren’t willing to make right now. I’ll be sitting this one out on the sidelines. That said, Nio will certainly be a stock to watch tomorrow morning.
On the date of publication, Chris MacDonald 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.