Here’s a fresh development in the clean-energy vehicle space. Reportedly, a government-associated fund is taking a large stake in China-based electric vehicle (EV) manufacturer Nio (NYSE:NIO). Prospective investors should certainly pay attention to this news item. Yet, it’s not a sufficient reason to buy NIO stock in 2023.

As we’ll discuss in a moment, a similar fund took a large share position in another EV maker, Lucid Group (NASDAQ:LCID). So far, that investment hasn’t worked out very well. I suspect that the same story will play out for Nio’s current shareholders, with a hope-fueled beginning and an unhappy ending.

What Government Is Making a Huge Investment in NIO Stock?

So, here’s the scoop. As reported by Louis Navellier and the InvestorPlace research staff, CYVN Holdings, an investment vehicle that’s majority-owned by the Government of Abu Dhabi, agreed to invest $738.5 million in NIO stock.

I’m already seeing problems with this. CYVN Holdings agreed to purchase 84,695,543 Nio shares at $8.72 apiece. As I’m writing this, the Nio share price is $8.43. Could this be the start of a deeper drawdown?

For a parallel comparison, let’s consider what happened after Saudi Arabia’s sovereign-wealth fund, the Public Investment Fund (PIF), added a nearly $1 billion position in LCID stock. That happened in late 2022, when the Lucid share price was near $6.50. Since then, it has declined to around $5.50.

The Bear Case for Nio Hasn’t Gone Away

Now, the Government of Abu Dhabi appears to be making a similar mistake. The red flags surrounding Nio haven’t disappeared just because a government-backed fund is a major shareholder.

Just to recap, Nio’s EV deliveries have diminished from 10,378 in March to 6,658 in April, followed by 6,155 in May. Furthermore, Nio’s revenue declined 33.5% sequentially in 2023’s first quarter.

Additionally, Nio posted a Q1 2023 net earnings loss of 42 cents per American Depositary Share (ADS). This fell short of the analyst consensus estimate of a loss of 22 cents per ADS. Plus, Nio’s result was notably worse than the loss of 18 cents per ADS that the company reported in the year-earlier quarter.

Making matters worse, there’s an unsettling trend with Nio’s vehicle margin. In particular, Nio’s vehicle margin has shrunk from 18.1% in 2022’s first quarter to 6.8% in the fourth quarter of that year. Then, it deteriorated even further to just 5.1% in Q1 2023.

Don’t Be in a Rush to Buy NIO Stock

All in all, I concur with the assessment of Louis Navellier and the InvestorPlace research staff. Should you invest in Nio because the government of Abu Dhabi did? Frankly, this “should have zero impact” for now on your “decision to buy/sell/avoid” NIO stock.

There was a parallel situation with Saudi Arabia’s Public Investment Fund buying a big chunk of LCID stock. Half a year later, that investment is in the red.

I suspect that the Government of Abu Dhabi will also experience disappointing results with its large-scale investment in Nio. All in all, since the automaker’s operational and financial results aren’t great, I don’t recommend buying NIO stock now.

On the date of publication, David Moadel 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.