After descending into penny stock territory yesterday, the future looks bleak for Nio (NYSE:NIO) stock.
The Chinese electric vehicle (EV) producer saw shares plunge yesterday. Today, they reached their lowest price point in three years. Yesterday’s decline is due to the company slashing its delivery outlook due to falling demand. However, NIO stock is facing other challenges that threaten to compromise its growth prospects further as the company faces an uncertain economic landscape.
Other Chinese EV producers have also reported disappointing forecasts, such as Li Auto (NASDAQ:LI), which recently slashed its sales projections. However, Nio’s future looks particularly troubling.
What’s Happening With NIO Stock
NIO stock is currently on an upward trajectory right now but it is still down almost 2.5% for the day. Given the recent delivery forecast reduction, it is unlikely that the company will be able to garner any lasting momentum. Things weren’t looking good for the troubled automaker before. Now, it has given investors a serious reason to disregard it. For as long as it remains a penny stock, NIO will be considered a highly speculative play at best.
Additionally, there is more bad news to keep aware of. China’s recent World Trade Organization (WTO) dispute should be concerning for investors. The nation claimed that parts of the United States’ Inflation Reduction Act (IRA) “resulted in the exclusion of goods from China and other WTO countries.” How the claims will be handled remains to be seen, but it is clear that China is worried about EV demand getting worse, both at home and abroad.
For a company like Nio, a small fish in a pond that is continuously filling with bigger competitors, this is particularly troubling. InvestorPlace contributor Tyrik Torres recently laid out the problems facing NIO stock, making a strong case for why investors should be concerned. In his words:
“Slumping demand for new electric vehicles has resulted in another phenomenon: a price war. To cushion the slowdown in sales, Nio, BYD and other EV competitors have pursued price cuts in their expensive models. For example, BYD’s Yuan Plus SUV has a price tag of 119,800 yuan, approximately $16,642, which is nearly 12% less than where it was before. NIO stock also announced a host of price cuts last year. This price war will likely intensify, especially as the EV slump continues.”
That happened before NIO stock reached a three-year low as it careened below the $5 mark. Unless it can pull back above it soon, the company could end up in the same group as Mullen Automotive (NASDAQ:MULN), a fellow EV penny stock that only sees occasional surges from superficial meme stock momentum. That’s not a company anyone wants to count as their peer.
The Road Ahead
It should come as no surprise that Wall Street sentiment toward Nio has been sharply trending downward lately. Mizuho Securities recently lowered its NIO stock price target and maintained a “hold” rating, as did UBS. Eight out of 16 analysts currently maintain the same rating, giving the stock a “moderate buy consensus.” But even so, it is impossible to ignore the bearish energy that is increasingly engulfing this troubled company.
As poor as its recent performance has been, NIO stock could have even further to fall.
On the date of publication, Samuel O’Brient did not hold (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.
