Nio Inc – ADR (NYSE: NIO) hit the market with a splash, making waves during its IPO just about a week ago. While the stock saw some strong gains in the beginning, I’m here to tell you that it’s time to abandon ship as all signs point to declines ahead. Today, we’ll talk about:
- Why it’s time to abandon the NIO ship;
- what we’re seeing from the stock; and
- what we’ll be watching for ahead.
Why NIO Isn’t All It’s Cracked Up To Be
As mentioned above, Nio made waves during its IPO. The reason for this is relatively simple. The electric car maker is in China, a country that is pushing for less emissions and requiring that many drivers make a shift to electric vehicles. Of course, this means that there is an opportunity open for the company to take advantage of a large market that it calls home.
However, there are a few important factors that investors seem to be skimming over here, and I believe that these factors will likely lead to declines ahead. Here they are:
- NIO vehicles are relatively expensive. In fact, the price of a Nio vehicle is at least double the cost of an average vehicle on the road today. The high cost has the potential to limit sales.
- The company is also burning through tons of cash. In the last quarter alone, the comapny lost more than $700 million, with climbing R&D and other expenses. Even with the $1 billion raised through the IPO, there’s not much cash for the company to survive on with a burn rate like that.
- Finally, the company has pretty aggressive ambitions, much like what we saw from Tesla. However, as we learned from Tesla, strong ambitions and strong production are two different things. With such aggressive ambitions, I believe that NIO is setting itself up to disappoint investors as it is unlikely that the company will ramp up production and sales as quickly as hoped.
All in all, the signs seem to be pointing toward declines.
What We’re Seeing From The Stock
While all signs seem to be pointing to declines in the value of Nio shares, investors continue to be excited as this new, hot company is now available for investment. While the gains are likely to turn to declines soon, investors are eating it up for now. As is normally the case, our partners at Trade Ideas were the first to alert us to the gains. Currently (9:49), NIO is trading at $8.07 per share after a gain of $0.39 per share or 5.08% thus far today.
Stop wasting your time! Start finding winning trades in minutes with Trade Ideas!
What We’ll Be Watching For Ahead
Moving forward, the CNA Finance team will continue to keep a close eye on NIO. In particular, we’re interested in following the company to see if it can reach its aggressive production ambitions. While we don’t think that this will be the case, anything can happen in the market. Nonetheless, we’ll continue to follow the story closely and bring the news to you as it breaks!
Never Miss The News Again
Do you want real-time, actionable news delivered to your inbox? Join the CNA Finance mailing list below!