The price performance of Nio (NYSE:NIO) stock has been horrendous over the past year.
However, NIO stock might have performed even worse, if not for the “growth resurgence” narrative. It’s one of the few things keeping shares in this China-based electric vehicle maker from capitulating.
Bullish investors who have subscribed to management’s aggressive guidance have given NIO shares a modest level of support, enabling them to hold steady at high single-digit prices for several months.
However, after seemingly reaching a bottom for several months, the trip to new multi-year lows may be just around the corner. In a few days, there’s an event that could set it in motion.
Over the next few months, there are other forthcoming developments that may further erode confidence in the aforementioned thesis.
Let’s take a closer look and see why there remains only one wise move to make with this stock.
NIO Stock and the Benefit of the Doubt
Take a look at a stock chart, and it’s clear that confidence in Nio’s future prospects have been on the decline. Most have grown more skeptical of the “story” behind this Chinese vehicle electrification play. However, some have kept giving the company the benefit of the doubt.
Management has talked up a big game when it comes to Nio and its 2023 growth potential. For instance, back in March, CFO Steven Feng stated that the company was “very confident” that it could hit its aggressive 2023 sales target, which called for the EV maker’s sales to more-than-double this year, to 250,000 vehicles.
Confident statements like this failed to fully turn around sentiment for NIO stock. As I’ve stated previously, lackluster monthly delivery numbers have, and continue to, cast doubt that a doubling of sales is in the cards.
Still, a bullish bloc of investors have bought into management’s explanation for recent disappointment.
That is, they believe that new vehicle launches, plus increased production, will lead to sufficient growth re-acceleration later this year for the company to still reach its sales goal. Again, this has helped the stock avoid a full collapse, but it may not for much longer.
What May Remove All Doubt
In a matter of days, even the biggest Nio fans may rethink their view on this stock. As InvestorPlace’s David Moadel recently argued, Nio’s quarterly earnings release on June 9 could kick off the next round of big declines for NIO stock.
Moadel’s argument focused mainly on the high chance that the EV manufacturer (based on its declining vehicle delivery volume) will underwhelm with revenue, and report higher-than-expected losses. However, this may not be the only major reveal from this event.
Management could also provide updates to guidance that walk back some of its prior outlook about massive sales growth during the second half of the year.
All of this could cause a big post-earnings plunge for NIO, but don’t assume that once the dust settles on this next possible sell-off, shares will have re-entered the buy zone.
Beyond the upcoming earnings report, it’s possible that there is further disappointment ahead. This is the case, even as (presumably) the recent launch of a new SUV model (the ES6) results in higher sales this month and in the coming months. Nio’s monthly delivery numbers could trend higher again, yet still fall short of expectations.
The Verdict
With Nio, increased output is only one side of the equation. Matching demand is the other side. EV demand is slowing down in China. Scores of automakers, including Tesla (NASDAQ:TSLA) have implemented vehicle price cuts to gain an edge.
However, Nio has remained reluctant to slash prices, insisting that its “superior” vehicle models will sell themselves. Only time will tell, but for now I am of the view that this will turn out to be a miscalculation in hindsight.
Instead of reporting 70% sales growth this quarter (ending June), as analyst currently forecast, growth could come in far below this amount. Actual results during the September and December quarters could also end up falling well short of forecasts.
As NIO stock hits the end of the road with its “growth resurgence” narrative, stay out of its way.
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.
