Steer Clear of NIO Stock as It Veers Off Course With New Venture

Stocks to sell

Loyal investors of China-based electric vehicle (EV) manufacturer Nio (NYSE:NIO) have suffered staggering losses since early 2021. Could Nio’s latest foray into another business venture put NIO stock in the fast lane? Don’t get your hopes up, as Nio really needs to focus on its vehicle deliveries, which aren’t as robust as some investors might have expected.

I’ve already discussed how Nio CEO William Li is stubbornly refusing to slash its EV prices to compete with Tesla (NASDAQ:TSLA). This could turn out to be a grave error for Nio during a time when many shoppers can’t afford high-priced vehicles.

Now, Nio’s management is making another decision that I happen to disagree with. I’m not suggesting that every investor has to give up on Nio altogether. Just be aware of the risks, as Nio seems to be spreading itself thin and should really just stick to manufacturing clean-energy vehicles.

Nio Tries Out Another Unproven Venture

First, there was the so-called NIO Phone, which is little more than a punchline now. Then, Nio shuttered its insurance brokerage subsidiary company due to regulatory problems. Now, Nio’s trying its hand at another business enterprise that doesn’t involve manufacturing new-energy vehicles. So, will the third time be a charm for Nio?

Here’s the scoop, courtesy of Reuters. Apparently, Nio “has invested in a startup firm that is developing fusion technologies,” known as Neo Fusion. Furthermore, Nio Fusion “will research and develop technologies that aim to bring controlled fusion for commercial uses globally in two decades.”

Nio is evidently all-in on this concept, as the automaker has invested 995 million yuan in Nio Fusion. Moreover, Nio’s intent is to “facilitate the R&D and commercialization of nuclear fusion technology by making financial investment into this project.”

Fusion-Tech Foray Isn’t Bullish for NIO Stock

Granted, Nio’s investment in fusion technologies isn’t as laughable as the NIO Phone. However, bear in mind that this is 995 million yuan that Nio isn’t spending on its core business.

At this point, Nio’s management reminds me of a friend who has a new business venture idea every year. He always starts off with a high level of excitement about each new idea, but the enthusiasm inevitably peters out after a while.

Do you recall Nio’s new partnership with energy technology company Tibber, back in March? Whatever happened to that? Shouldn’t there be an update on this collaboration by now? Nio seems to want to be everywhere at once, but the company should concentrate on improving its EV sales.

Bear in mind, Nio delivered 10,378 vehicles in March of this year, followed by just 6,658 deliveries in April. Clearly, Nio and its stakeholders could benefit greatly if the company simply channels its capital and attention toward increasing Nio’s vehicle sales.

Don’t Take Any Chances With Risky NIO Stock

Nio could simply stick to what it does best: making EVs. The company hasn’t fully proven itself with that business model, as it’s still unprofitable. Yet, at least Nio has a great deal of experience and know-how as a vehicle manufacturer.

In contrast, Nio’s foray into fusion technologies is extremely risky. It will undoubtedly divert capital and effort away from Nio’s core business.

As the company continues to move far afield, Nio’s stakeholders should be very concerned. The company doesn’t need to have another NIO Phone type of failure in its track record. So, while it’s not necessary to panic-sell NIO stock, I definitely don’t recommend adding any shares 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.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

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