Nio (NYSE:NIO) hit new lows recently, which has led many investors to question whether NIO stock is a bargain worth pouncing on. The interest in NIO is even more profound with earnings just around the corner alongside the recent haircut to the stock price.
NIO might attract some investors who aren’t concerned of risk-taking during chaotic wartime periods like the one we’re experiencing with the Russia-Ukraine conflict. But there are several reasons why investing in NIO stock today isn’t a good idea.
While it’s always important to consider fundamentals when analyzing stocks, today I’m going to focus on three factors beyond fundamental issues that impact the case for NIO.
NIO Is Listed on the Hong Kong Limited Stock Exchange
NIO announced that it is officially listed on the stock exchange of Hong Kong Limited. Why did NIO decide to choose a dual listing? The answer is to avoid the pain and the possibility of getting delisted in the U.S. stock market under tighter regulations placed on Chinese companies. Current geopolitical tensions have placed greater tension between the U.S. and China. This could ultimately lead to several, if not all, Chinese stocks getting delisted from U.S. stock exchanges.
Apart from the listing on the Stock Exchange of Hong Kong Limited, it is important to note that NIO did not raise any capital this time. It could be that shareholders have been diluted in the past year, with total shares outstanding growing by 5.6% and NIO did not want to add further selling pressure to its stock.
Increase in Deliveries Sets High Expectations
Nio reported a 9.9% year-over-year increase in vehicle deliveries for February 2022. This delivery increase has set high expectations on NIO with its fourth-quarter and full-year 2021 reports not far away. Any miss on revenue, growth and profitability — plus any weak guidance for 2022 — will be bad news for NIO stock, which is already currently very volatile without these elements factored in.
NIO Is Still Searching for an Economic Moat
An economic moat can give a company an edge to strengthen its brand, build a loyal customer base and thrive. NIO claims to have distinguished itself from other EV makers in two key ways: “[T]hrough its continuous technological breakthroughs and innovations, such as its industry-leading battery swapping technologies, Battery as a Service, or BaaS, as well as its proprietary autonomous driving technologies and Autonomous Driving as a Service, or ADaaS.”
I argue that Autonomous Driving as a Service is not unique. Other EV makers offer it too or will offer it in the future. There is a large gap in the legislation that does not allow for a fully autonomous car to operate yet (at least in Europe).
On the other hand, the Battery as a Service is both brilliant and unique. Chances are that other EV makers will probably follow the example of NIO and offer their version of swapping batteries to their models.
NIO should try to make the best out of this Battery as a Service in terms of revenue, cost and offer an aggressive pricing strategy to attract more users to try it. It is a game-changer and a service I would pay for without any hesitation. Why wait hours for a battery to get charged when within a few minutes you can replace a battery with a new fully charged one? Kudos to NIO for this revolutionary idea.
Bottom Line on NIO Stock
NIO has a range of models that target customers who love sedans and SUVs vehicles. However, it remains to be seen if there is any progress on the revenue and profitability fronts that may create a bounce for NIO stock.
Investors who want to step in early and support the idea that a stock at its new 52-week low may be ready for a rebound could try a straddle play using options to take advantage of the volatile price action on the date of the earnings release. Buying the stock now is like a risky bet, an options trading strategy can mitigate the risk as long there will be a ton of volatility when news comes out, either good or bad.
Either way, keep an eye on March 24 for wild price swings in NIO stock after the company reports earnings.
On the date of publication, Stavros Georgiadis, CFA did not have (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.