Nio Stock Price Is On Track for Penny-Stock Status

Key Points

• Nio increased deliveries, but losses were worse than expected, and guidance is weak.
• Analysts are still bullish on the stock but are trimming their targets.
• Short-sellers are in the mix and unlikely to relent now that guidance is in.  

Nio Inc. NYSE: NIO stock price has trended steadily lower since the EV bubble burst, and it is on track to set new lows. The latest earnings release reveals the continued dominance of the Chinese EV market at the cost of investor value. The company is improving its margins but has yet to produce a profit, and it may take some time before profitability is reached. Price wars are pressuring margins. Increased competition in a saturated market does not bode well for the bottom line. 

However, the news is not all bad. The analysts continue to see value in the EV company, although they are trimming their targets. Marketbeat tracks a half dozen revisions from the ten analysts with current price targets. They've lowered their rating to Hold over the last year and the price target by nearly half, but a floor is in sight for the market. The low end of the range is just below the current action, aligning with a recent bottom in the price action, and the range of new targets suggests fair value at current levels.

Nio Lowers Guidance, But Analysts Still Expect Accelerating Growth

Nio lowered its guidance for F2024 to below the analysts' consensus targets because lower realized prices will offset volume growth, but the net results are still positive. The new guidance implies about 27% growth this year, which is a solid amount, and the consensus forecast adds another 38% in F2025. The margin is also expected to improve, but losses will continue through 2025, contrary to projections issued last year, with no sure way of knowing when profits will be made.

Risks to Nio's outlook include leaning into lower-priced models. The company plans to add two low-cost mass-market brands to compete more effectively with Tesla NASDAQ: TSLA and Xpeng NYSE: XPEV. Xpeng, meanwhile, is doing the same thing to compete better with Tesla, which is working hard to drive down costs. The move may increase market share and enhance profitability but also cannibalize Nio's existing addressable market in favor of cheaper, lower-margin vehicles. 

Another risk is the US ban on microchips. It impacts the availability of needed materials in China and may affect sales as the year progresses. China has told its automakers to source as much silicon domestically as possible and is investing billions into new technology. Patrick Gelsinger of Intel NASDAQ: INTC estimated China's capabilities are about ten years behind the global standard, so there is a lot of ground to make up. 

There Are Two Possible Catalysts for Nio's Business in 2024

Two possible catalysts for NIO's business are a partnership with Contemporary Amperex Technology and plans to add 1,000 new battery swap stations. Among Nio's claims to fame is the ability to easily swap batteries. This capability allows for cheaper car sales (without the battery) and opens the door to recurring revenue streams. Owners can lease batteries and swap them at will. The company operates more than 2,200 stations in six countries, managing more than 60,000 swaps per day. Another 45% more stations will increase availability and improve Nio's consumer appeal over other EV automakers. 

The partnership with Contemporary Amperex Technology aims to improve battery life for its battery-swap system. The goal is to enhance the relative value of Nio vehicles by improving lifespan in a world on the brink of widespread battery warranty expiration. 

Nio's Stock Is Trending Lower, New Lows Are In Sight 

Nio's stock is in a protracted downtrend and may set new lows soon. Short-selling is an issue to be wary of. Nio's stock was about 10% short going into the release, and short interest is likely higher now. With no bullish catalyst to drive the stock and profitability moving further into the future, the short-sellers will likely remain committed to this trade and pressure the market for the foreseeable future. 

The post-release action has the market confirming resistance at the 30-day moving average and setting a new closing low now. If the market continues this pattern, a new low could be reached within days. In this scenario, the market could quickly fall another $1.00 to $1.24 to reach $3.50.