Many electric vehicle (EV) stocks are rising today on news that Volkswagen (OTCMKTS:VWAGY) is preparing to invest up to $5 billion in electric truck startup Rivian (NASDAQ:RIVN). This announcement is fueling a rally that is pushing up even struggling EV stocks, including Nio (NYSE:NIO) stock.
Chinese EV maker Nio has spent the past month trending downward, failing to garner any sustainable momentum. But today, NIO stock is rising steadily, enjoying the upward mobility sparked by the Rivian rally.
It appears that Rivian is finally on the verge of a turnaround. But does this mean that Nio is destined for the same fate? Given its lack of recent catalysts, that doesn’t seem likely. Let’s take a closer look.
What’s Happening With NIO Stock?
After watching Nio decline more than 50% for the past six months, it’s hard to be optimistic about NIO stock. That’s why even as shares rally today, most investors likely aren’t too excited for the firm. As of this writing, the stock is up roughly 5% for the day. However, while it has been an overall good trading week so far, shares remain in the red by 7% for the past month.
The sad truth is that the Rivian rally will likely be short-lived for many EV stocks — and Nio is no exception. Because the firm doesn’t benefit directly from a major investment for Rivian, there’s no reason Nio should keep rising as the momentum dies down. At its core, the company still faces many problems. InvestorPlace contributor Thomas Niel recently discussed the bearish case against NIO stock:
“Nio’s hyping up its potential to experience a growth resurgence. Why? High competition in the Chinese EV market calls it into question. Moreover, recent trade tensions between the U.S. and China could limit Nio’s global expansion plans, including in Europe. In the quarters ahead, if operating performance fails to dramatically improve, and further cash burn leads to a growing likelihood for additional dilutive capital raises, expect a further correction for NIO.”
Some contrarian investors may see today’s performance as a reason to bet on NIO stock. But when a rally is spurred by a catalyst specific to one company, the party often ends quickly for other firms in the space. A Chinese automaker with increasingly limited prospects, Nio will likely remain below the $5 mark while RIVN stock continues rising.
On the date of publication, Samuel O’Brient did not hold (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.
