Red Flags Rising: Avoid a Troublesome Trade With Nio Stock

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There’s a “good news, bad news” situation in May for China-based electric vehicle manufacturer Nio (NYSE:NIO). Despite a strong monthly vehicle-delivery report, the bad news may outweigh the good news. Given the uncertain future growth prospects, we rate Nio stock as a “D.”

This doesn’t mean Nio is doomed or anything like that. We’re only trying to warn investors about the risk-to-reward balance. Nio’s shareholders are down significantly this year so far, and there’s no need to catch a falling knife and hurt yourself in May.

Weighing Nio’s Monthly EV-Delivery News

So, here’s a report from Nio that caused the share price to pop but then drop a few days later. It’s quite telling, you must admit, that Nio stock didn’t hold its gains for very long despite the seemingly positive news.

According to the company’s news release, Nio grew its EV deliveries by 134.6% year over year to 15,620 units in April 2024. That’s compared to 6,658 delivered vehicles in April of 2023.

There’s a phenomenon we might call the “comparison effect” going on here. Triple-digit percentage growth gains can stem from excellent performance, or from a comparison to last year’s lackluster performance.

Investors should consider that Nio stock declined in 2023 and has been in a steep downtrend since 2021. The company has tried many tactics to reverse this unfortunate trend, including delving into the EV-battery market. Yet, Nio’s commitment to this market is questionable, as the company plans to spin off its battery-production unit.

Tough Times for Nio in 2024

The point is that one seemingly positive month for Nio doesn’t, by itself, establish a consistent pattern. Besides, Nio’s April delivery growth should be taken into context as Nio still has issues to deal with.

One issue is the ongoing EV price war. Some investors might get excited about Nio’s Onvo vehicle model, which is expected to debut on May 15. The first Onvo model, known as the L60, will reportedly be priced at the equivalent of around $34,600.

Meanwhile, rival China-based automaker BYD (OTCMKTS:BYDDY) already sells an EV, known as the Seagull, for $9,670. Hence, if Nio is trying to compete in price war, the company definitely has some catching up to do.

Then, there’s is issue of international trade tensions. As InvestorPlace contributor Eddie Pan reported and Barron’s confirmed, the current U.S. presidential administration is preparing to enact or maintain tariffs on several Chinese sectors, including EVs.

Irrespective of the outcome of the U.S. tariffs on China’s products, the international tensions won’t likely end anytime soon. It’s prudent to sidestep these issues by choosing not to put Nio stock in your portfolio now.

Buy Nio Stock in May? We Say, ‘No Way!’

You have to made the final decision for your portfolio, of course. However, Nio’s vehicle-delivery growth in April shouldn’t be a sufficient reason to make an investment. Just think about the “comparison effect” we talked about earlier, along with Nio’s other troublesome issues.

Most of all, consider whether there’s a truly compelling reason to invest in Nio after the steep, multiyear share-price decline. The risk-to-reward balance just doesn’t look very favorable in May, so Nio stock only earns a “D” grade today.

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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