As with stocks across the board in the electric vehicle sector, investors have been warming back up to Nio (NYSE:NIO) since the start of the new year. So far in January, NIO stock has rallied by more than 26%.

Although factors like Tesla’s (NASDAQ:TSLA) vehicle price cuts weighed on shares in the China-based EV maker earlier in the month, several developments, including a recently-announced battery partnership deal (more below) have perked up investor enthusiasm for the stock.

Nevertheless, I wouldn’t view this as a sign that a recovery is in motion for this hard-hit vehicle electrification play. The issues that hammered NIO shares throughout 2022 remain in play.

While the market hasn’t exactly gotten carried away, its possible expectations right now exceed the company’s likely vehicle delivery and financial results for the coming quarters. Renewed disappointment, and yet another pullback, may lie ahead.

NIO Stock and Its Recent Rally

There are numerous reasons why sentiment for Nio shares has improved as of late. Investors overall have been cycling back into electric vehicle stocks, in large part to recent signs that economic headwinds like inflation and interest rates could soon ease. China’s dismantling of its Covid lockdown restrictions is also making the market more bullish about the stock.

But alongside this, a company-specific development is playing a role in sending NIO stock to higher prices. As InvestorPlace’s Eddie Pan reported on Jan. 18, the EV maker has entered a five-year cooperation agreement with Chinese electric battery company Contemporary Amperex Technology (CATL).

This cooperation agreement could help Nio further enhance the battery packs utilized in its vehicles. Given CATL’s reputation as the world’s top EV battery maker, along with its track record of bringing cutting-edge battery technology to market (such as its high-range Quilin battery), it makes sense why the market has reacted positively to this news.

Yet while Nio may be charging ahead, that doesn’t mean the expected payoff will arrive in the near term. There are a pair of challenges that may continue to affect the company’s operating performance.

Two Reasons Why Shares Could Reverse Course

Investors buying NIO stock today may be prematurely assuming that massive improvements to the company’s performance are just around the corner. However, there are two reasons why this may not be the case, and why Nio shares are still at high risk of reversing course.

The first reason is continued home market headwinds. Chinese Covid lockdowns may have ended, but as argued earlier this month, Nio CEO William Li’s warning of “sales challenges” points to far less impressive monthly delivery numbers for Nio, in the first half of 2023.

Other factors could affect growth, even in the second half of 2023. For instance, rising competition. Some evidence suggests Tesla is gaining market share in China, thanks to its vehicle price cuts.

The phasing-out of China’s EV subsidies at the end of 2022 could also affect delivery numbers throughout the year. If delivery numbers disappoint, NIO will likely pull back.

The second reason has to do with the company’s efforts to expand internationally. Nio may be moving aggressively in Europe, expanding its sales and battery swap station network across the continent. Yet if all this expansion fails to result in promising initial results, this too could sour enthusiasm for the stock.

The Best Move Today With NIO Stock

Nio’s late 2022 sell-off may has so far morphed into a modest rebound in 2023, but this rebound may not last. Based on the stock’s performance over the last few trading sessions, it may be already starting to lose momentum.

In the immediate term, the company’s release of January delivery data a week or two from now could elicit a negative reaction from the market. Li’s “warning” signals that the numbers for this month will likely fall short of the figures reported for December.

For the remainder of the year, both home market and international expansion challenges could further dampen the stock’s appeal. This may result in shares re-testing their 52-week lows.

With key issues not quite yet in the rearview mirror, steering clear of NIO stock continues to be the best move to make.

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.