Nio (NYSE:NIO) stock rallied last week, but it was short-lived. An indirect factor related to positive news with another big EV name in fueled this brief uptick in price. Now that the speculative frenzy has faded, it’s no surprise that shares retreated.
However, even worse than the false hope perhaps generated by this dead cat bounce, is the fact that the story with Nio has not changed one iota. Still stuck on a dead-end street, shares remain on the bleak path toward new multiyear lows.
NIO Stock: Behind the Late June Rally
As you might have guessed, it was news of Volkswagen’s (OTCMKTS:VWAGY) plans to invest up to $5 billion into U.S.-based EV startup Rivian Automotive (NASDAQ:RIVN) that led to the aforementioned late June rally for NIO shares.
On the heels of this news, investors dived into other small, struggling EV stocks, and NIO stock was no exception. However, much like we recently argued about another “EV also-ran” briefly boosted by this news, Lucid Group (NASDAQ:LCID), it’s difficult to see a similar deal taking shape for Nio.
Admittedly, Nio does have some unique proprietary technology. This may be appealing to an incumbent automaker looking to make the vehicle electrification transition.
Namely, Nio’s battery swap technology. This technology, which enables vehicle owners to quickly swap batteries at local “stations” rather than charging them back up at home, has yet to give Nio much of a competitive edge in its home market of China.
However, we could see how larger competitors may want to get their hands on this technology. There are factors pointing to auto manufacturers deciding not to form a partnership with Nio.
Still Likely to Go at it Alone, from Bad to Worse
A partnership deal would undoubtedly lead to a turbocharged rally for NIO stock, but don’t count on one happening. It’s hard to see Nio’s Chinese rivals deciding to partner with the company. Rather, chances are that rivals will continue to muscle Nio out of the market, as the China EV price war rages on.
Among non-Chinese automakers, geopolitics stands to get in the way. Yes, major U.S. automakers are developing EV batteries using technology licensed from China-based battery maker CATL.
However, rising trade tensions between China and not just the U.S., but Europe as well suggests that any sort of partnership would face considerable scrutiny.
Also, Volkswagen’s big bet notwithstanding, incumbent automakers in the U.S. and Europe appear to have their EV expansions game plans in place.
Except for perhaps additional investment from CYVN, an Abu Dhabi-based fund that has already invested billions into Nio, expect this EV startup to keep going at it alone, from bad to worse. What do we mean by “bad to worse?”
As argued previously, Nio faces a trunkload of issues. These growth and profitability issues aren’t likely to go away anytime soon, leaving NIO vulnerable to further price declines.
Steer Clear, as Lower Prices Likely Lie Ahead
The issues that knocked NIO down below $5 per share will keep on sinking it to new multiyear lows. Unless, of course, Nio ends up having a sleeper hit on its hands with one of its recent or upcoming new vehicle launches.
However, err on the side of caution. Assume the growth slump persists. If this happens, so too will the company’s cash burn problem.
Sure, Nio could raise more capital to cover these losses. Even so, this will most likely lead to a further watering down of NIO’s stock price. As before, time is running out for exiting a position while you still can.
Pretty soon, whether with quarterly results, or with the latest vehicle delivery numbers, what’s left of investor confidence in NIO stock could plunge once again, leading to another big decline for shares.
NIO stock earns a D rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
