Nio stock price forecast: smartphone is a drag, not a catalyst

Nio (NYSE: NIO) stock price will be in the spotlight in the next few days as the company unveils its smartphone. The shares plunged to a low of $8 on Tuesday, the lowest level since June 23rd. They have retreated by more than 48% from the highest level in August.

Nio Inc. is facing major headwinds

Nio is a leading Chinese EV company that was once seen as the country’s equivalent to Tesla, the biggest firm in the industry. Recently, Nio has been going through numerous challenges, including slow growth and high competition.

Competition is a big challenge for all Chinese EV companies. A few years ago, there were over 500 firms in the space, helped by huge subsidies by the government. Today, there are less than 100 companies.

Nio is competing with two types of companies. First, there are pure-play EV companies like Xpeng and Li Auto, which have all gained market share over the years. Second, there are traditional automakers like Volkswagen, BMW, and General Motors that have launched their EVs.

Nio’s main challenge is that the Chinese market is now getting saturated. Also, the company has no market share abroad. And recently, European leaders vowed to investigate Chinese companies like Nio, Xpeng, and Li Auto.

The most recent results showed that Nio’s revenue came in at over $1.2 billion in Q2, down by 18.50% from a year earlier. Its gross margins dropped to 1% in Q2 from 13% in Q2 of 2022. It also increased its R&D costs by 55.6%, Nio hopes to deliver between 50k and 70k in Q3.

Nio smartphone launch

Therefore, Nio hopes that its new smartphone will help to supercharge its growth. It will start deliveries of these phones on Thursday this week. The phones will be priced between $889 and $1,029.

Still, I believe that smartphones will not be a major business for the company. First, I feel that the phones are quite expensive. As such, many potential buyers might prefer to buy the new iPhones instead.

Second, the smartphone industry is now highly saturated with companies like Apple, Samsung, and Xiami having a big market share. New smartphone companies, including Nothing and Google Pixel have struggled to gain share.

Third, the smartphone industry is not a growing one. In a recent report, Counterpoint Research found that smartphone sales have been in a downward trend in the past few months. Most brands, including Samsung, Vivo, iPhone, and Oppo have been falling.

Therefore, I believe that, instead of launching a smartphone, the company should instead focus on improving its EV operations and profitability.