In recent months, Chinese electric-vehicle maker Nio’s deliveries and automotive revenues (NYSE:NIO) have been dropping sharply amid intensified competition from Tesla (NASDAQ:TSLA) and other automakers. Moreover, Nio lacks a significant competitive advantage, and the company’s new smartphone could hurt the automaker more than help it. Given these points, I advise investors not to buy or hold NIO stock.
Here are some more reasons to consider avoiding NIO stock.
Nio’s Intensified Competition
In August, Tesla reduced the prices of two models of its Model Y EVs in China by 14,000 Chinese yuan or $1,935.
Nio cut the prices of its EVs by $4,200 in June but does not appear to have significantly lowered the amounts it charges for its EVs since then. Consequently, Tesla’s price reduction has likely made it more difficult for Nio to sell its crossovers and SUVs, which compete with the Model Y. Crossovers and SUVs typically account for most of the Chinese automaker’s deliveries.
Moreover, Chinese EV startup Aito, which has received a significant investment from China-based telecom giant Huawei, announced that it had obtained over 50,000 orders for its M7 SUV, which will likely compete with Nio’s SUVs.
Nio’s Deliveries and Revenue Have Slumped
Last month, Nio’s deliveries dropped 19% compared with August and came in at 15,641. And in August, its deliveries declined about 5% versus July to 19,329.
Finally, in the second quarter, the company’s revenue generated from selling its EVs fell 22% versus Q1 and 25% compared with the same period a year earlier. This is a crucial point about NIO stock, which cannot be dismissed easily.
Nio Lacks a Major Competitive Advantage
Nio’s main rivals in the Chinese EV market have significant competitive advantages over their rivals. Tesla has its strong global brand, Li (NASDAQ:LI) has well-loved hybrid EVs, and BYD (OTC:BYDDF) sells trendy hybrids and affordable EVs. Meanwhile, as I’ve pointed out in multiple past columns, Xpeng’s (NYSE:XPEV) advanced driver assistance system is ahead of most of its competition in China, including Tesla.
I used to believe that Nio’s battery-swap program, which allows drivers to obtain a fully charged battery in five minutes, was a significant competitive advantage. But since the company reportedly charges about $13.65 per swap and fast chargers can charge an EV to 80% capacity in 15-30 minutes, I don’t see the service as a competitive advantage for Nio at this point.
It’s a New Smartphone that May hurt Nio
On Sept. 21, Nio unveiled its smartphone, the NIO Phone. According to Bank of America, the device has “the world’s first car-control button,” which “enables over 30 car commands” and will allow users to control the EVs from remote locations, Seeking Alpha reported.
One analyst, Unity Asset Management’s Cao Hua, was very upbeat about the initiative, writing, “The Nio phone’s connectivity with smart EVs will make the vehicles safer, more entertaining, and helpful in play and work.”
It sounds as though Nio’s remote control capability will not be very different from Tesla’s Summon system, which is already available in its EVs. Summon allows Tesla’s EVs to be remotely controlled up to 200 feet away. As a result, Nio will not get much of a competitive advantage over TSLA by releasing the NIO phone.
I think that Hua may be exaggerating the device’s impact, as I find it difficult to believe that manipulating an EV with a smartphone will make the vehicles meaningfully more valuable and attractive.
After all, except in terrible weather, walking 200 feet to your vehicle is not too difficult, while pressing buttons on a phone is not very different from pressing buttons on a dashboard.
Meanwhile, many analysts believe the product will push Nio further into the red.
Perhaps more importantly, I believe that working on the phone could undermine the ability of Nio’s management team to focus on rejuvenating its core EV business.
At the time of publication, Larry Ramer held a long position in XPEV. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
