Over the past year, an investment in China-based electric vehicle manufacturer Nio (NYSE:NIO) has yielded poor results. Nio shares might seem like a bargain, but are they really? Today’s NIO stock analysis finds that it only deserves a “D” grade and has poor recovery prospects. Part of Nio’s problem involves competition from Tesla (NASDAQ:TSLA), but there’s more to the story than that.
There’s a lesson to be learned, as the Nio share price kept falling last year even after it already looked cheap. It just goes to show that looks can deceive, and any stock can continue to lose value unless it’s literally at zero.
Bad News for NIO Stock Investors
Reportedly, one reason NIO stock sank in recent weeks is because Tesla lowered the prices of two EV models, the Model 3 and Model Y, in China. This appears to be part of Tesla’s strategy to deal with China’s challenging economic situation.
In other words, the competition is heating up in China’s new energy vehicle market. Tesla is a fierce competitor and a much bigger company than Nio. It won’t be easy for Nio to defend its market share against a global EV giant like Tesla.
InvestorPlace contributor Thomas Niel mentioned competitors like Li Auto (NASDAQ:LI) “are reporting much stronger levels of growth” than Nio. In response to this, some optimists might point to the upcoming launch of Nio’s so-called “electric executive flagship sedan,” the ET9, as a potential growth catalyst.
“Executive flagship” is an odd descriptor, but even if we’re willing to overlook this, we shouldn’t get our hopes up. After all, the ET9 isn’t slated for launch until 2025, so this doesn’t provide a near-term positive catalyst for Nio.
This Nio Statistic Will Shock You
Here’s a textbook example of why doing your research is an absolute necessity. Since Nio is constantly being mentioned in the financial press, you might assume that the company has a dominating presence in China’s NEV market.
In actuality, Nio only commanded a paltry 2.1% share of China’s NEV market last year. Nio lagged Tesla (7.8% market share) and Li Auto (4.9% market share) in this area.
And by the way, Nio is competing for a slice of a surprisingly small financial pie. Alarmingly, only around 226,000 passenger NEVs were sold retail in China from Jan. 1 through Jan. 14.
That’s down 21% compared to the same period of the prior month. This isn’t entirely Nio’s fault, of course, but it’s another worrisome statistic to consider if you’re thinking about buying NIO stock.
NIO Stock Analysis: This One Is Off-Limits to Cautious Investors
What’s stopping us from giving Nio shares an outright “F” rating? Mainly, it’s Nio’s vehicle-delivery growth. It’s noteworthy, but Nio still has to face stiff competition from the likes of Tesla and Li Auto.
In the end, our NIO stock analysis comes to a simple conclusion. The stock gets a “D” rating because Nio has serious challenges in an already challenging Chinese NEV market. Therefore, even if Nio shares might look cheap at first glance, we don’t recommend buying the stock now.
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.
