Chinese EV player Nio (NYSE:NIO) has faced a particularly challenging start to the year, emerging as one of the worst-performing stocks in its niche. Nio stock is down upwards of 58% year-to-date (YTD) as it continues battling headwinds from all sides. While recent delivery reports show promise, Nio’s stock lacks a compelling catalyst for a potential snapback. Given its poor fundamental and technical outlook, Nio stock is a sell at this point.
Despite its recent setbacks, Nio seems committed to its impressive growth trajectory. Nevertheless, the headwinds battering Nio’s business, particularly the fierce price war in its domestic market, have weighed down demand significantly while taking a major toll on its business. Earlier in the year, we saw many of its peers, including Nio, cutting prices to stimulate sales at the expense of its bottom line.
Adding to the challenges, Chinese EV players, including Nio, are now facing hefty tariffs from the United States and, more recently, the European Union. Hence, the big question is: Can Nio stock bounce back at the backend of the year? Seems unlikely.
Delivery Gains Can’t Shake Bottom-Line Troubles
The past couple of months have been encouraging for Nio from an operational standpoint. Delivery growth has been impressive, crossing the 20,000-unit threshold for the third consecutive month in July. Despite a 3% month-over-month dip in July, Nio surged past the 20,000-unit threshold, delivering 20,498 vehicles. Moreover, on a YTD basis, Nio’s deliveries were up 43.9%.
However, the superb delivery numbers did little to move Nio’s stock price. Additionally, Chinese EV stocks have been taking hits lately due to fears of more U.S. export restrictions and former President Donald Trump’s remarks on Taiwan’s defense funding. The markets spooked that chip trade tensions could have a spillover effect on supply chains and jeopardize U.S.-China partnerships.
Perhaps what’s more concerning for Nio is the EU’s recent decision to implement steep tariffs on all battery electric vehicles (BEVs) imported from China. This decision comes after a nine-month investigation by the European Commission concluded that Chinese EV players benefitted tremendously from government subsidies, giving them a massive edge in the region. Hence, the EU wants to impose 37.6% countervailing duties to offset the subsidies. These tariffs will likely pressure Nio’s margins further, as it has been steadily expanding its operations in the EU.
Speaking of margins, the chart above shows Nio’s worsening net income position over the past four years. We can see that the EV player’s net income has plummeted at a remarkable pace, with losses deepening from $859.5 million in 2020 to nearly $3 billion in the TTM, highlighting significant cash burn. This growing deficit points to growing operational costs, R&D investments, and competitive pressures it faces in the EV market.
Technicals Pain A Worrying Picture
Nio has had a rough outing in the stock market over the past three years, and the lack of major catalysts is incredibly concerning over the long term.
The chart clearly shows how Nio stock has diverged from the S&P 500 over the past three years, with a lone spike at the five-year mark. Nio achieved its all-time high of $62.84 back on February 09, 2021, during the height of the EV-SPAC era, but since then, it’s been mostly in freefall.
The worsening trend is illustrated further by its moving averages over a six to seven-month period. Over the past 200 days, NIO’s stock has dropped a worrying 50%, reflecting sustained bearish momentum. Shorter-term indicators, such as the 50-day and 100-day moving averages, also show massive declines, indicating continued selling pressure. Hence, Nio’s technicals point to a challenging recovery, and without a strong reversal catalyst, things are unlikely to improve.
Bottomline on NIO Stock
Nio’s trajectory paints a grim picture. Despite posting strong delivery reports, the overarching financial and market pressures point to significant challenges. Further complicating things, the recent EU tariffs and ongoing price wars in China are nibbling away at its margins, aggravating its deplorable bottom-line position. Moreover, its technicals underscore a distressing trend, offering little hope for a snapback. Given these factors, a turnaround for Nio in the latter part of the year seems increasingly unlikely without a robust catalyst.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, Muslim Farooque 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