D-Rated NIO Stock Is Still on a Collision Course

Stocks to sell

There’s no denying that Nio (NYSE:NIO) ended 2023 on a high note. The China-based EV maker’s “Nio Day” in December boosted NIO stock. Another development also helped to bolster sentiment for this popular play among those bullish on the vehicle electrification trend. However, as seen in more recent trading days, said rebound in sentiment is fading, and fast.

After hitting prices nearing $9.50 per share, the stock has since dipped back below the $8 per share mark A move back to its 52-week low ($7 per share) may lie ahead, or worse, a move to even lower prices. Besides the role of broad market movements, it’s also possible that, after becoming secondary to the latest positive news, unresolved issues are once again becoming top of mind again.

NIO Stock and the Latest Round of Fleeting Bullishness

Look at headlines regarding Nio from mid-to-late December, and it’s not a mystery why the market suddenly became much more willing to bid up this floundering EV play’s shares back toward higher prices.

Again, one of the largest factors for this latest round of bullishness for NIO stock was the company’s “Nio Day,” held on Dec. 23. The highlight of this event was the unveiling of Nio’s premium ET9 vehicle model. Alongside the ET9 unveiling, the company also launched the latest iterations of its power swap station and power charging technology.

All of this fueled a rally for NIO, on the first trading day following the event (Dec. 26). As hinted above, another development also played a role in sustaining Nio’s late December rally. That would be the closing of a large capital raise. Abu Dhabi-based CYVN Holdings has purchased $2.2 billion worth of newly issued NIO shares.

This is the second time CYVN has made a strategic investment in Nio. As you may recall, last summer CYVN invested around $1 billion into the company. While these developments may have sparked a fresh round of bullishness, said spark may prove fleeting.

Brace for Another Reversal

Sure, NIO stock thus far this year has only declined slightly. With this, you may think I’m making a mountain of a molehill, by suggesting that a modest pullback is the start of a massive reversal. Yet while not for certain, investors may focus on key risks with Nio: slowing growth and persistent losses.

Yes, the company’s latest deliveries data sounds promising on the surface. For the full year 2023, Nio’s deliveries were up 30.7%. During Q4, they rose 25%, and during December, vehicle deliveries were up 13.9% year-over-year.

But while that may sound like vigorous growth, keep in mind that competitors like Li Auto (NASDAQ:LI) and Tesla (NASDAQ:TSLA) are reporting much stronger levels of growth. Nio still seems to lag the competition. Meanwhile, the competitive pressures are also still resulting in lower gross margins and continued operating losses. That’s why, as I discussed last month, deep job cuts remain on the table.

While downsizing could help pare down losses, such a move could also be a detriment to the company’s future expansion. If that’s not bad enough, uncertainty over a key element to Nio’s long-term growth plan remains high.

Bottom Line: Still on a Collision Course, So Stay Away

As InvestorPlace’s Dana Blankenhorn recently argued, possible political backlash may limit how much this EV contender can make up for weak local growth, with growth in overseas markets like Europe and the U.S.

I’ve said it many times, but I’ll say it again. Much of Nio’s valuation has been derived from the expectation that it’ll become the Chinese counterpart to Tesla, a major brand both inside and outside its home country.

If the company fails to gain traction internationally, and if it remains an “also-ran” in its home market? Kiss this premium valuation goodbye.

While a severe de-rating may not arrive immediately, the company remains on a collision course to receive one. If new developments signal that such disaster will be averted, a second look is warranted.

Until then, however, avoiding NIO stock continues to be your best move.

NIO stock earns a D 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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