So far this month, Nio (NYSE:NIO) has continued sinking to new lows. At around $4 per share, Nio stock is not merely in penny stock territory. The Chinese EV play is now a full-on penny stock, and it’s likely to stay that way.
Why? Mostly, because the company’s dire situation remains unchanged. The many issues with Nio that we have discussed in past coverage of this struggling vehicle electrification play have not gone away.
Worse yet, even as Nio bulls may point to certain factors suggesting better times ahead, the major negatives are likely to persist. Outweighing any positives, knocking NIO to even lower prices.
A situation reminiscent of what’s going on with this EV “also-ran’s” U.S.-based counterparts, as we’ll once again explain below, there’s little reason to even consider buying this stock.
Nio Stock and its 3 Big Negatives
Three key negatives have been in the driver’s seat, when it comes to NIO’s stock price declines over the past year. First, sluggish sales growth. Second, high cash burn. Third, the impact of prior and potential future shareholder dilution.
Based on recent news, it’s clear that all three of this issues persist, and will likely continue to affect the performance of Nio stock.
When it comes to sluggish growth, all you got to do is look at Nio’s latest vehicle delivery numbers. As we pointed out previously, Nio’s Q1 2024 deliveries fell 3% year-over-year, and by 10% on a quarter-over-quarter.
Compare that to other China-based EV upstarts, like Li Auto (NASDAQ:LI) and Xpeng (NYSE:XPEV). These rival “China EV contenders” reported Q1 2024 deliveries growth of 50% and 20%, respectively.
Regarding high cash burn, Nio reported negative operating cash flow of nearly $1.2 billion in 2023. Based on quarterly earnings forecasts, Nio is set to stay deep in the red.
This underscores the shareholder dilution risk. Nio has sold billion’s worth of newly issued shares to Abu Dhabi-backed investment vehicle CYVN, and could continue doing so, to raise the cash necessary to sustain additional operating losses.
China’s Tesla? More Like China’s Lucid!
At one point, Nio was considered to be China’s answer to Tesla (NASDAQ:TSLA). An EV maker on track to become a dominant brand globally.
However, besides the fact that even Tesla itself isn’t doing so hot globally right now, Nio remains light years away from being an EV maker akin to Tesla.
Rather, it’s more like China’s answer to Lucid Group (NASDAQ:LCID). Granted, this isn’t an apples-to-apples comparison.
Nio is significantly ahead in scaling up production and sales. Nio sells more EVs in a month that Lucid has managed to sell over an entire year.
There are many similarities. Similar to Lucid, Nio was once considered a potential “Tesla killer.”
Also similar to Lucid, Nio has also struggled to expand its customer base. Not only that, the company’s relationship with CYVN is similar to that of Lucid’s relationship with Saudi Arabia’s Public Investment Fund.
Hence, it may not be out of the question to say that the future could play out for Nio much like it is likely to play out for Lucid. Safe to say, this isn’t the best outcome for Nio stock investors.
The Verdict: Still Set to Spiral Lower
PIF is investing in Lucid, as part of Saudi Arabia’s efforts to diversify its economy. Besides selling additional shares to PIF, Lucid has started building EVs in the Gulf oil kingdom.
Likewise, CYVN is investing in Nio, as part of Abu Dhabi’s efforts to diversify its economy.
While not yet building a Nio factory in Abu Dhabi, the company has licensed some of its technology to a CYVN affiliate.
Similar to the Lucid/PIF situation, CYVN could keep buying up newly issued Nio shares, increasing its ownership and influence, but watering down NIO’s per share value.
For now, this is our prognosis, as there’s no end in sight for Nio’s many problems. Yes, battery-swap station expansion and new vehicle model launches could change all of this.
For now, however, assume that Nio stock will keep spiraling to even lower prices.
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.