One of the most well-known Chinese EV makers in the market, Nio (NYSE:NIO) stock is a name I’ve been bullish on in the past. Indeed, we’re all aware that the EV market is going to grow, and China has led the way. One might think that this pure-play BEV maker based out of China should benefit from strong demographic growth trends.
However, Nio has faced some hurdles over the past year because of the company’s exposure to the high end of the market. In Q2 2024, NIO reported 57,373 vehicles delivered, with a cumulative 537,020 units delivered.
However, with new EU tariffs and high valuation risks, this may negatively affect NIO stock, which has already dropped 50% year-to-date.
The company continues to struggle with fierce competition from Tesla (NASDAQ:TSLA) and BYD (OTCMKTS:BYDDF). This has led to Nio capturing less than 2% of the Chinese market. Additionally, demand for EVs weakened, and Nio’s battery-swapping model appears to have proved costly and unlikely to gain global traction.
With rising losses and declining vehicle deliveries, investors may have better alternatives out there right now.
Deliveries Are Still Down
In early June, NIO announced May deliveries of 20,544 vehicles, marking a 233.8% year-over-year increase. This included 12,164 premium electric SUVs and 8,380 sedans, bringing the company’s total cumulative deliveries to 515,811.
NIO’s SUVs, such as the ES6, ES7, and ES8 models, continue to remain more popular than its sedans.
Despite strong delivery numbers, NIO faces stiff competition from larger Chinese market players like BYD, Li Auto (NASDAQ:LI), and Tesla, each of whom hold more significant market share.
Xiaomi’s entry with its SU7 sedan, delivering 7,000 vehicles in April and increasing to 8,630 in May, poses a challenge to NIO, potentially closing the gap as Xiaomi ramps up production.
Roadblocks From the EU
NIO stock declined over 60% in 2023, trading well below its initial IPO price. This has been led by declining deliveries and shrinking margins, as various supply chain issues have unfolded. However, there are more pertinent recent headwinds for the Chinese EV maker.
Nio’s unique swappable batteries and European expansion face a setback with new tariffs in the EU ranging from 17.4% to 37.6%, including a 20.8% tariff for Nio. This tariff is added to the existing 10% import duty.
Nio plans to maintain current European prices but might raise them later because of these tariffs.
Nio could avoid tariffs by manufacturing in Europe, but higher production costs would likely negate the benefits. Currently, Li aims to strengthen European partnerships and scale operations for viable production.
Now, Europe remains a small market for Nio, with just 100 deliveries in 2021 and 1,296 in 2022, compared to 91,429 and 122,486 globally. That said, for a company that’s valued based on its growth prospects, this is certainly a headwind investors are going to price in here.
Nio’s stock might become a value play if it overcomes challenges in China and scales in Europe. Speculators may consider buying now, but stock pressure may persist until vehicle margins improve, losses narrow, and European expansion proves sustainable. Valuation could remain low due to trade and geopolitical tensions.
Steer Clear of NIO Stock
Nio has faced ongoing trade frictions with the U.S. and Europe, yet it doubled down on its growth prospects, projecting Q2 2024 deliveries of 54,000 to 56,000 units, marking a 129.6% to 138.1% increase year-over-year. Despite international challenges, Nio expects revenue growth accelerating from 89.1% to 95.3%, reaching $2.373 billion over the next year.
I’m not so sure the company will hit these targets. Nio faces challenges in meeting ambitious goals amid tough conditions for Chinese EV makers. Its heavy focus on Onvo models raised concerns about differentiation.
As a result, NIO stock is one I think is worth waiting on, for investors who believe the Chinese EV sector will eventually turn the corner. I just think it’s going to be possible to pick up NIO stock at better levels moving forward.
On the date of publication, Chris MacDonald 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.
