Stocks to sell

Nio Stock: All the News Says Investors Will Lose

Once a blockbuster hit in the financial markets, Nio (NYSE:NIO) stock can’t seem to gain traction in 2023. Will next year be any better? Don’t get your hopes up, as the recent news items pertaining to Nio don’t give a very positive impression.

China-based EV manufacturer has the unenviable task of competing against Tesla (NASDAQ:TSLA), which started an EV price war on a global scale. Yet, as we’ll discover, Nio’s upcoming sedan model won’t have an attractive price. It’s just one of multiple concerns as many of Nio’s investors struggle to achieve breakeven this year.

Something All NIO Stock Investors Need to Think About

Here’s an issue that every Nio shareholder needs to consider. If you invest in Nio, you’re not only getting portfolio exposure to an EV maker. You’re also getting exposure to a company that’s going all in on battery swapping technology.

In other words, you’d better be completely on board with battery swapping if you plan to hold NIO stock. As a refresher, battery swapping refers to regularly replacing depleted EV batteries (or at least, parts of batteries) with fully charged ones instead of going to a charging station.

Either Nio’s management is brilliant and ahead of its time, or stubbornly doubling down on a technology that might not achieve mass adoption. As a Reuters report explained, other EV manufacturers say that battery swapping stations “are too costly and prefer offering fast charging technologies and extended-range hybrid models to solve range anxiety for users.”

Nio is taking a huge risk by investing heavily in battery swapping technology. Remember, Nio is unprofitable and missed EPS estimates in its most recently reported quarter. So, perhaps it’s not wise for Nio to take big financial risks, and this is something investors should consider carefully.

Nio’s Wrongheaded Idea: Introduce an Ultra-Expensive EV

As you may have heard, Tesla is planning a cheaper EV model in Europe. This is important news for NIO stockholders because Nio sells vehicles in Europe and in China.

Andy Wong, a fund manager at LW Asset Management Advisors Ltd., considered the potential financial impact of Tesla’s affordable vehicle model on Nio. “The Tesla news could weigh on investor sentiment for its Chinese competitors, and Nio — with its weak financials and productions — could be more vulnerable to selling pressure,” Wong clarified.

Plus, here’s another troubling issue for Nio. Instead of following Tesla’s lead and making its EVs ultra-affordable to consumers, Nio is actually moving in the opposite direction and rolling out a shockingly expensive vehicle model.

Not long ago, CarNewsChina broke the news that Nio is preparing a major product launch in December. In particular, Nio plans to introduce an electric sedan with a price tag of 1 million yuan or $140,000.

This is simply a wrongheaded strategy. Tesla is already a global EV market dominator, and it will continue to succeed by making affordable vehicles. That’s a great way to convert reluctant EV buyers into lifelong customers.

Meanwhile, Nio is abruptly moving in the opposite direction and making EVs that are out of reach for the middle class. Given the nation’s uneven economic recovery, it’s unlikely that China’s car shoppers will be able to afford $140,000 vehicles.

Keep NIO Stock Off of Your Must-Own List for Now

Some things need to change before I can enthusiastically recommend investing in Nio. For one thing, the company needs to get closer to profitability.

In addition, Nio shouldn’t be so insistent on pursuing battery swapping technology. Nio ought to focus on making EVs more affordable, not less affordable to China’s middle class. Therefore, investors should be cautious and stay away from NIO stock.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

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