As EV maker puts cart before horse, avoid NIO stock

Since September, the effervescence for Nio (NYSE:NIO) the stock has cooled again. After jumping on analyst upgrades, shares of the China-based electric vehicle (or EV) maker have fallen significantly as headwinds in its home market weigh on stocks.

Nio is indirectly affected by the myriad of challenges currently facing the Chinese economy. More directly, issues such as continued pandemic shutdowns and supply chain bottlenecks are having a direct impact.

Despite these challenges, the company continues to forge ahead with its expansion into Europe. Last week, Nio unveiled its plans to expand its European presence. Yet, instead of helping to counter its problems with China, this rapid expansion may make matters worse.

Currently, this ambitious electric vehicle manufacturer, aiming to become a global brand on par with You’re here (NASDAQ:TSLA), can overextend. This could lead to more difficulties for investors.

NIO Stock: From Soar to Plunge

While last month’s market sell-off played a significant role in Nio’s recent share price performance, factors more directly related to the company also played a role in its slide from the low $20s to the lows. years per share.

China is in the midst of an economic downturn. The impact of this is already impacting EV demand in the world’s largest electric vehicle market. As Reuters reported on October 11, the Chinese Electric vehicle sales growth last month hit slowest pace in five months. Coupled with a slowdown in demand come the production headwinds mentioned above.

These two factors explain why Nio experienced disappointing year-over-year shipment growth (2%) during September. While there has been excitement about a possible re-acceleration in shipments/sales growth this quarter as these issues persist, the prospects of that happening are murky at best.

With that, I wouldn’t count on the NIO stock, after its recent plunge, experiencing another big surge anytime soon. In fact, I would expect the opposite. Not only will its existing China-related issues weigh on stocks, but new developments with its first steps to becoming a global maker of electric vehicles could also push prices down.

Nio’s big move to Europe might not pay off

On October 7, Nio held its European launch event, as reported InvestorPlace William White on the same day. At the event, held at Nio’s offices in Berlin, Germany, the company detailed its plans to launch in more European markets, as well as plans to introduce its latest vehicle models in Europe.

As reported by White, this event did not have a positive impact on NIO stock. Instead, stocks fell, although this can be attributed more to the indirect and direct issues I discussed above. That said, this element of Nio’s overall “story” may soon begin to negatively impact its stock performance.

So far, investors have given Nio the benefit of the doubt when it comes to its penetration of new EV markets. Over the next few quarters, the market will have a better idea of ​​whether the company has a chance of grabbing enough market share, or if it won’t.

Given the competitive challenges of You’re here (NASDAQ:TSLA), as well as incumbent European automakers that have increased their respective electric vehicle offerings, Nio’s European results could be disappointing, further damaging Nio’s waning reputation as a possible “Tesla killer.”

Conclusion on NIO shares

At the same time, Nio is failing to meet expectations in its home market, the same could happen with its entry into the European automotive market. Nio’s management might, in hindsight, realize that waiting for it to establish itself and be profitable in China before going global was the best decision.

However, the company chose to take the riskier decision instead, pursuing global expansion as quickly as possible. If its latest bet doesn’t pay off, Nio could find itself struggling with a struggling and unprofitable European segment, while its Chinese segment struggles with growth issues, which could delay the shift to consistent profitability. .

In light of its existing headwinds and the possibility of new challenges emerging, steer clear of NIO stocks. Sentiment about this so-called “Tesla killer” might turn even more negative from here.

NIO stock gets a D rating in portfolio binder.

As of the date of publication, neither Louis Navellier nor the member of the InvestorPlace research staff principally responsible for this article holds (directly or indirectly) any position in the securities mentioned in this article.