Nio (NYSE:NIO) has fallen back to below $5 per share, which places NIO stock back at penny stock levels. To those less aware of the situation with the China-based EV maker, this may seem like an opportunity to snap up a high-growth stock on the cheap.
However, those more informed about the situation know full well that, although at rock bottom prices, NIO is hardly a bargain. Sure, growth may indeed be back on the menu for the company, based upon the latest delivery numbers and guidance.
Even so, the extent of future growth may be capped, by tariff trouble currently taking shape. Despite the company’s return to high-growth mode, cash burn remains a major issue. Given these two major issues, “buying the dip” today could be disastrous.
Nio Stock: A Post-Earnings Pullback and a Questionable Bull Case
Earlier this month, Nio reported its fiscal results for the quarter ending March 31, 2024. In a nutshell, the results were not very impressive. The EV maker missed on both revenue and earnings.
With shares experiencing a mild post-earnings pullback, it’s clear that the market focused entirely on the negative aspects of the release.
However, alongside the bad were some seemingly-positive takeaways. Investors may start to take these into account, as NIO stock finds support at between $4.25 and $4.50 per share.
In fact, a bull case may take shape, based on management’s guidance for the current quarter, which was provided alongside the Q1 2024 numbers.
Namely, Nio will probably report far stronger results for the current quarter. During April, and especially in May, Nio experienced a big jump in vehicle sales.
This gives credence to management’s guidance for Q2 2024 deliveries to more than double compared to the prior year’s quarter.
Yet while this could provide a glimmer of hope for a late-year Nio resurgence, here’s our take: don’t hold your breath.
Nio may be poised to report solid year-over-year growth this quarter. However, beyond this quarter, growth prospects become murkier.
Threats to Growth, Profitability, and NIO’s Future Stock Price
Some investors may be buying into Nio stock on rebound hopes, but there’s a good reason why a majority of the market isn’t subscribing to this view: Nio’s sales recovery may not last long as competition continues increases in Nio’s home market of China.
Going forward, it may prove difficult to add or sustain a high level of monthly deliveries. This puts more pressure on Nio to pursue growth outside of China.
However, as we’ve discussed before, the recently-enacted Biden China EV tariffs will undoubtedly prevent Nio from entering the U.S. EV market.
Even worse, tariff hikes in Europe may come next. That would stymie Nio’s ongoing European expansion efforts.
If limited to only its home market, Nio may have to go on the offensive, by aggressively slashing vehicle prices, despite recent remarks from CEO William Li that suggest otherwise.
Lower prices could help sustain high growth, but at the same time lead to continued heavy cash burn.
As Citi’s Jeff Chung recently pointed out, Nio is slated to burn through $3.2 billion during 2024 and 2025. In turn, this may lead to something that really places pressure on NIO’s stock price: more shareholder dilution.
The Verdict: Hit the Brakes While You Still Can
A return to weak growth, the continuation of high losses, and a possible need to raise more money through the issuance of new shares could make “cheap” NIO an even cheaper stock in the months ahead.
After returning to sub-$5 per share prices, a dip down to $4, $3, or even less per share may be in the cards.
Again, this strongly suggests that you shouldn’t go bottom-fishing with this stock. Sticking to far less risky contrarian wagers is the better course of action. If you are still holding onto Nio, like we’ve stated before, there’s still time to get out, but the clock is ticking.
Maybe not next week, and maybe not next month, but pretty soon, the next wave of major disappointing news could arrive, which will drive the next big tumble for Nio stock.
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.