Stocks to sell

Is NIO Stock Headed for the Junkyard? The Risks Investors Can’t Ignore.

“Down but not out” may be a great way to describe Nio (NYSE:NIO) stock, down more than 50% on the year. Since the height of its popularity in 2021, shares have fallen by nearly 93%. Headwinds have affected the company’s performance, leading to poor results.

While Nio’s management may still be pursuing something it believes will help overcome persistent issues, we are not so optimistic. Even if the company isn’t at the end of the road, expect more declines ahead for shares.

Nio Stock: Tough Times Continue

Based on recent developments with Nio, it’s no surprise that shares have continued to experience sharp price declines. For instance, look at the EV maker’s most recent vehicle delivery numbers. During March, Nio delivered 11,866 vehicles.

This represented an increase compared to delivery numbers in preceding months, and a 14.3% increase on a year-over-year basis.

However, because of the poor delivery figures during January and February, total deliveries for Q1 2024 came in at 30,053 vehicles. Reported deliveries not only barely beat Nio’s walked-back guidance.

Total deliveries during the quarter were down 3% year-over-year, and down 10% on a sequential, or quarter-over-quarter, basis. That’s not all. Poor fiscal results have also continued to be an issue for NIO stock. Last month, the company released its latest quarterly and annual results.

Although vehicle margins, on a sequential basis, went up during the December quarter, so too did net losses, rising 36.8% to $756 million.

For the full-year, Nio’s top-line grew by only single-digits. Margins declined, and net losses came in at nearly $3 billion. Clearly, the key issues that have knocked NIO lower in the past three years have yet to go away.

Nio’s Still Going for Broke With its Battery Swap Gambit

Much of the problems hurting the performance of this company, and in turn, Nio stock, have been driven by factors largely out of management’s control.

China’s sluggish post-Covid recovery has resulted in a slowdown in growth demand for EVs.

With the Chinese EV market growing at a slower pace, while competition rises, the “China EV price war” has intensified.

As a result, Nio now faces more hurdles than ever, when it comes to both ramping up vehicle sales, and doing it in a way that leads to profitability.

That said, like we hinted at above, Nio continues plugging away with its battery swap gambit, or its pricey buildout of battery swap station infrastructure throughout its home market.

Nio keeps believing that swap stations, which in theory increase potential range, will help to increase demand for its vehicles. However, there are two big risks with this strategy.

First, this buildout is pricey. As InvestorPlace’s Eddie Pan reported on March 25, Nio plans to build 1,000 new stations, at $500,000 each. That’s $500 million.

Second, Nio already operates thousands of stations, and based on the above-mentioned fiscal results, these have clearly done little to improve demand.

The Verdict: Sell or Avoid This Busted EV Play

At one point, Nio appeared primed to become not just a major global EV brand. Now, it may prove challenging for Nio to gain ground/become profitable in its home market of China. Much less, overseas markets like Europe and North America.

The company may believe strongly in its battery swap-focused growth strategy. However, as demand growth stays sluggish, this would-be differentiator could continue to have little impact on carving a path towards profitability.

As high losses continue, investors will also continue to lose confidence that this busted EV play will ever break free of its current “also-ran” status. High losses could also mean an increase in concerns about future shareholder dilution.

Just as we put it previously, it’s hard to be confident about Nio stock right now. With this in mind, consider it best to sell or avoid it.

Nio stock earns an F 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.

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