Nio (NYSE:NIO) stock has fallen below $6 per share, levels not seen since before the 2020 “EV stocks” bubble. “EV stock mania” caused a surge in this penny stock during 2020 and 2021 driving it north of $60 per share. With prices at multi-year lows, some may consider buying this Chinese EV maker. My answer to this question is a resounding “no.”
While NIO may be back in low-price territory, unfortunately this stock isn’t exactly in bargain or oversold territory. Rather, there’s a good reason why you can get at such rock-bottom prices. Nio’s fundamentals/prospects have deteriorated. With this, additional price declines appear inevitable.
NIO Stock and its Neverending Sell-Off
The deflating of the above “EV stocks” bubble helped to explain most of Nio’s downfall. However, more recent declines, such as its move back toward “penny stock territory,” can be attributed to unfavorable Chinese EV industry trends.
Chinese EV demand first took a big hit during China’s 2022 “Zero Covid” lockdowns. In 2023, these lockdowns ended, but as the Chinese economy has made a sluggish recovery, so too has EV demand.
Throughout last year, there was talk of the company gearing up for a late-year resurgence in production and deliveries. This likely helped to provide some price support for NIO stock.
However, this expected “growth resurgence” failed to fully arrive. Although delivery numbers picked up, total deliveries for the year (160,038) came in far lower than initial estimates (250,000). Even worse, coupled with less-than-anticipated growth was another big negative: falling margins.
Softening EV demand resulted in a price war among Chinese EV makers. Nio entered this price war with disastrous results, as seen in the company’s latest financials. As I have discussed recently, the increase in net losses/cash burn has led to Nio pursuing layoffs and a spinoff of its battery business.
Why Shares Could Keep Spiraling Down to Lower Prices
Given how far NIO stock has fallen from its high-water mark, you may assume that all of the aforementioned negatives have been baked into its valuation. However, the situation here may be poised to go from okay to bad to worse.
In turn, this may mean Tesla continues to make aggressive price cutting moves, especially in China. This is likely bad news for Nio, in terms of both market share growth and margins.
Even with the layoff/battery spinoff efforts, high losses may carry on. Yes, Nio did just recently receive a $2.2 billion investment from an investment firm (CYVN Holdings) affiliated with the Government of Abu Dhabi. They could leave the company well-capitalized in the near-term.
But unless conditions improve, Nio may have to once again tap into external funding sources, as InvestorPlace’s Michael Que recently argued. Doing so will cause shareholder dilution. This will likely additionally pressure the stock, causing it to spiral down to even lower price levels.
Bottom Line: Just Say No to Nio
Even as the challenges continue to plague the Chinese EV market, the long-term growth potential has not gone away. However, once the current headwinds fade, we can expect the EV companies that already dominate the market to benefit the most.
That’s not to say weaker names like Nio have zero chance of turning things around. In time, this company could get back into high-growth mode, and back on a path to profitability. The issue is that, between now and when a comeback (possibly) takes shape, lower-quality names like NIO could experience continued price declines.
There’s little reason to dive into NIO stock at under $6 per share. A move to $5, $4, or even less per share may be in the cards. As I recently suggested, stick with the better Chinese EV stocks, and just say no to Nio.
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.