Given the fact that Nio (NYSE:NIO) stock is down year-to-date, eager investors may be tempted to take a long position now. However, this is actually a time to exercise caution.

For one thing, China’s on-and-off zero-Covid policies could throw a wrench into the works. Besides, Nio’s financials are less than ideal, especially when it comes to the company’s profits (or lack thereof).

As a China-based electric vehicle (EV) company, Nio has to contend with multiple challenges. There’s the prospect of having to compete in a fierce EV market. Plus, Nio must deal with a government that’s not always business-friendly.

Regardless of where you’re located, if you’re invested in Nio, the company’s problems will become your problems. There may be a time to take a stake in Nio at some point in the future, but for the time being, a watch-and-wait strategy is entirely appropriate.

What’s Happening with NIO Stock?

NIO stock started 2022 at $33, but recently declined to just $12 and change. Bear in mind, just because a stock has a lower price, doesn’t necessarily mean it’s a good value.

It’s difficult to assign a proper value to a stock when there’s an unpredictable government. On Nov. 11, a number of U.S.-listed Chinese companies’ shares rallied because Beijing seemed to be easing some of China’s Covid-19 restrictions. Yet, the hope of a near-term full reopening in China wouldn’t last long.

Fast-forward to Nov. 22, and China is reporting 28,127 new domestically transmitted Covid-19 cases. This number was close to the nation’s daily peak from April.

The next thing you know, there are reports of cultural and entertainment venues closures and restricted use of some shopping malls and restaurants. This, clearly, is a challenging macro-level environment for Nio to work in.

Nio’s Financial Are Problematic

Meanwhile, some folks probably celebrated Nio’s most recently reported quarterly financial results, but perhaps they shouldn’t. There’s good news in the data but also major issues.

It’s true that Nio increased its revenue 32.6% year over year during the third quarter of 2022. However, Nio also saw its gross margin shrink from 20.3% to 13.3% during that time.

Furthermore, Nio’s gross profit contracted 12.9% year over year, but that’s not even the worst part. Distressingly, Nio’s net earnings loss ballooned 392.1% year over year to the equivalent of $577.9 million in Q3 2022.

Now, we can start to see why NIO stock hasn’t regained its footing this year. Currently, there are too many holes in the bull thesis for investors to put their faith in Nio.

What You Can Do Now

This isn’t to suggest that Nio is a toxic business that’s about to go bankrupt. There may be an appropriate time to consider NIO stock in the future.

However, once again, let’s not confuse a low share price with a compelling value. The macro-level and company-specific conditions simply don’t favor an investment in Nio, so feel free to stay on the sidelines for now.

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.