China-based electric vehicle (EV) manufacturer Nio (NYSE:NIO) has fierce competition, including from the likes of automotive giant Tesla (NASDAQ:TSLA). It’s going to be difficult for NIO stock investors to succeed this year, as Nio remains inflexible on EV prices. Plus, Nio’s margins are down, but the company’s capital outlays are rising sharply.

Not all of the news surrounding Nio is negative. For instance, during 2023’s first quarter, Nio’s vehicle deliveries jumped 20.5% year over year.

Yet, just because Nio is able to sell vehicles, doesn’t mean the company will have an easy time fending off Tesla and other rivals. Besides, turning a decent profit is just as important as selling EVs — and in that department, Nio’s definitely not on the right track.

Nio’s Refusal to Lower EV Prices Is a Problem

NIO stock hasn’t done well over the past year and is also down in 2023 year-to-date. Nio could really use a catalyst now, but that’s not likely to happen as the company is inflexible when it comes to vehicle pricing.

Larry Ramer opined, “Nio’s reluctance to reduce prices is understandable,” given the company’s sharp decline in gross profit margin (which we’ll discuss in a moment). Nio CEO William Li has stated outright, “For us, we will certainly not join the price war.”

However, during a time of global economic uncertainty, automotive shoppers don’t care about Nio’s margin issues. They want a good car at a reasonable price. Tesla’s series of price cuts demonstrates that company’s responsiveness to the customers’ needs and demands.

Li tried to justify his refusal to implement price cuts by saying that Nio’s EVs “are superior to the Model 3 and Model Y in terms of design, technology and performance.” That’s a matter of opinion, and of course, Li isn’t an objective commentator in this matter. It’s unfortunate, frankly, that Nio is stubbornly refusing to make its pricing structure more accessible to moderate-income buyers.

Slipping Margins Don’t Bode Well for NIO Stock

I promised that we would talk about Nio’s falling margins, and the company’s recently issued Form 20-F (annual report) has plenty to reveal about that topic. As we’ll see, the data doesn’t look positive for Nio.

In 2022 compared to 2021, Nio reported year-over-year declines in the following measures:

• Gross profit: Down 24.6%
• Gross margin: Down 45% (10.4% in 2022 versus 18.9% in 2021)
• Vehicle margin: Down 32% (13.7% in 2022 versus 20.1% in 2021)
• Other sales margin: -29% in 2022 versus +5.7% in 2021

Nio’s spending habits certainly haven’t helped the company’s margins. The automaker’s research and development expenses soared 136%, believe it or not. Moreover, Nio’s selling, general and administrative expenses increased 53.2%. Going forward, Nio’s shareholders should insist that the company commit strongly to cost reduction, rather than focus too much on keeping EV prices high.

So, Is NIO Stock a Buy or Sell?

Nio is going to have a tough time competing successfully with Tesla and other EV manufacturers in 2023. In reducing the prices of some vehicles, Tesla is leading by example. Yet, Nio refuses to follow that example.

Additionally, Nio’s rapid spending appears to be taking a major toll on the company’s profit margins. Therefore, NIO stock is a sell and prospective investors should seek EV-market gains elsewhere.

On the date of publication, David Moadel did not have (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.