As the EV market is seeing significant downside currently, Nio stock (NYSE:NIO) is only one of the companies experiencing big-time downside. The fact is that NIO stock is down nearly 50% tells most investors what they need to know about this stock’s performance thus far. Increasingly tight competition in China combines with other sector-wide headwinds to provide big down-side potential for the company moving forward. So, most growth investors may have moved onto other names.
Of course, Nio’s monthly deliveries are stabilizing. This, it’s difficult to ascertain whether this Chinese EV maker could be on the brink of a comeback. The company did see Q1 deliveries come in below analyst forecasts, so this picture is also murky. But if the company can beat expectations moving forward, perhaps there’s a value argument to be made for this stock.
I’ve been on the fence when it comes to Nio stock in the past, but here’s why my view has shifted to a more bearish tone on the company of late.
Nio’s 900V Drive System
Let’s start with some positives, shall we?
On March 27, Nio stock announced the mass production of “Thunder,” its 900V electric drive system (EDS), coinciding with the production of its one-millionth EDS. The upcoming Nio ET9 will be the first to feature this Thunder EDS, which boasts lighter, more compact electric motors for improved energy consumption and cabin space.
Nio’s ET9 debuts with a groundbreaking 925V W-Pin synchronous permanent magnet electric motor, boasting a power density of 4.3 kW/kg. It also features an innovative 1200V silicon carbide power module and continuous wave winding technology, promising enhanced performance and longevity. The first mass-produced 900V Thunder EDS rolled out, heralding the arrival of the ET9 in the Chinese market by 2025.
Nio Way Ahead
Predicting long-term stock prices involves complex analysis of various factors like interest rates and management quality. Trend analysis can help by using historical performance to forecast future returns. For Nio, the past 5 years show an annualized return of -2.7%, suggesting a potential future value of $4.03.
Nio plans to introduce a new mass-market EV brand named “Le Dao” in May, targeting the family segment with affordable vehicles priced around $20,000. This move aims to rejuvenate vehicle sales amid challenges in sustaining growth momentum.
If successful, the launch could spur growth when large-scale deliveries commence in late 2024, prompting investors to consider its impact on the stock’s potential.
The Problem with Nio
Recent developments have led to significant declines in Nio’s stock, notably its latest vehicle delivery figures. Although March saw an increase in deliveries to 11,866 vehicles, Q1 2024’s total of 30,053 fell short of expectations, with a 3% year-over-year decrease. Additionally, poor fiscal results persist, impacting Nio’s stock performance.
Despite a sequential increase in vehicle margins in the December quarter, net losses surged by 36.8% to $756 million. Nio’s annual revenue growth remained in single digits, accompanied by declining margins and nearly $3 billion in net losses. Persistent challenges continue to weigh on Nio’s performance over the past three years.
It May Be Best to Sell or Avoid NIO Stock
Many challenges affecting the company’s performance, and consequently, NIO stock remains a hold or a sell, in m books. China’s slow post-Covid recovery slowed EV demand growth, intensifying competition and pricing wars.
Despite efforts like expanding battery swap stations, Nio faces hurdles in increasing sales and achieving profitability. The company’s costly infrastructure expansion and past station performance raise doubts about its effectiveness.
On the date of publication, Chris MacDonald 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.