Nio stock forecast: Here’s why the freefall could continue

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on Apr 16, 2024
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  • Nio shares continued their freefall this week.
  • Concerns about the EV industry continued this week after Tesla announced layoffs.
  • There are worries about demand for Chinese EVs in Europe and the US.

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Nio (NYSE: NIO) stock price plunge is not ending. The shares collapsed to a low of $3.90 on Monday and the sell-off continued in the pre-market session. It has slipped by over 57% this year and by about 60% in the past 12 months. That plunge has brought the company’s market capitalization to about $8 billion.

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EV woes are continuing

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Nio’s stock is not the only one that is in a freefall. Other popular companies in the industry have been in a strong bearish trend. VinFast’s stock plunged by more than 68% this year. 

Similarly, Tesla’s shares have fallen by over 35% this year while Rivian, XPeng, Lucid Motors, and Li Auto have all slipped by over 25%. Along the way, this plunge has led to trillions of dollars in losses since 2022.

The EV industry is battling major issues as the growth trajectory fades and as competition remains at an elevated level. China has over 100 EV companies, with Xiaomi being the newest entry in the business.

The implication of all this is that the Chinese market is highly saturated as companies compete to gain market share. As a result, many of them have continued to slash their prices in a bid to gain market share. 

Nio has seen its margins worsen in the past few years. Data shows that its EBITDA margin stood at minus 8.25% in 2021 and has worsened to minus 40%. The situation will likely get worse in the coming years as more Chinese EV companies dump vehicles to the market.

Therefore, Nio and other Chinese companies are looking to expand abroad as they seek to gain market share and diversify their returns. Nio has already moved to the European market with mixed results. Data shows that it has struggled to replicate Tesla’s success in the country. 

The most recent financial results showed that Nio delivered over 50,000 vehicles in the fourth quarter of last year. As a result, the firm delivered 160,037 vehicles in 2023.

Nio delivered slightly above 30,000 vehicles in the first quarter, lower than its estimate of about 33k. Management expects that it will deliver over 200k vehicles this year.

Nio’s total revenue in the fourth quarter stood at over $2.4 billion, a 6.5% increase from the same quarter in 2022. It was also a 10% decrease from the third quarter. 

Therefore, I believe that Nio’s woes will continue to worsen as the EV industry faces major headwinds. Just this week, Tesla warned that it will lay off 10% of its total employees in a bid to cut costs.

Nio has also been slashing jobs in the past few months. Last year, the company announced a 10% reduction in the number of jobs. It has continued laying off workers this year.

There are also signs that the company’s global expansion will face major roadblocks. A US senator has proposed banning Chinese EVs in the country while Europe is studying the impact of Chinese subsidies to the EV industry.

Nio stock price forecast

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NIO chart by TradingView

I have warned about Nio shares several times in the past few months as you can find here and here. Sadly, these dire forecasts have been accurate as the stock has now crashed to its lowest level since June 2020.

Nio has moved below the crucial support level at $7.03, its lowest swing in May last year. It has remained below all moving averages, signaling that bears are in control. The Relative Strength Index (RSI) and the Stochastic Oscillator have all moved to the oversold level.

Therefore, the outlook for stock is still bearish, with the next point to watch being at $3. This view could change as EV companies publish their financial results. Tesla will publish its numbers next week while Nio will release its figures on May 29th

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