As NIO (NYSE:NIO) stock heads for the skies, investors are getting greedy, and hardly anyone wants to wait for a share-price dip. Yet, that seems like the best strategy now, and I am neutral on NIO stock until it comes down to a more reasonable price point.
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China-based electric vehicle (EV) manufacturer NIO deserves credit for growing its business despite competition from the likes of Tesla (NASDAQ:TSLA). As we’ll discover, an agreement made it easier for NIO to compete with Tesla – or at least it would have made it easier for NIO, but things didn’t work out as planned.
Plus, we’ll find out that the analyst community isn’t generally super bullish on NIO stock for the next 12 months. All in all, it’s fine to follow NIO’s unfolding story, but you don’t have to jump into a hasty stock trade.
NIO’s Pact with Tesla Gets a Rug Pull
Over the past couple of years, NIO had the home-country advantage in the Chinese EV market, but Tesla made it more difficult for NIO to attract customers. That’s because Tesla enacted a series of vehicle price cuts, and it wouldn’t have been easy for a comparatively smaller start-up like NIO to dent its own profit margins like Tesla did.
Then, a seemingly positive news item came out of China. According to a Bloomberg report, 15 EV manufacturers with operations in China, including Tesla and NIO, signed a potentially historic agreement. It was a pact brokered by the China Association of Automobile Manufacturers (CAAM) in which the automakers agreed to avoid “abnormal pricing” and maintain fair competition.
This happened in early July, and NIO stock has rallied sharply since then. Yet, soon after the signing of the pact, there was a rug-pull moment when Reuters reported that the CAAM retracted the pledge to avoid “abnormal pricing.” Apparently, the pledge was in violation of antitrust laws in China.
So, that was the end of an agreement that could have changed the course of EV industry history. It was over almost as soon as it began, and NIO’s investors should have taken profits at that point – right?
NIO Stock Surges, but the Data Isn’t All Good
Of course, the financial market isn’t always rational, and sometimes it overshoots to the upside or the downside. In the case of NIO stock, I suggest that it overshot to the upside when it rallied from $10 in early July to more than $14 now.
That’s a 40% gain in less than 30 days, and once again, the CAAM pact collapsed soon after it was signed. Meanwhile, NIO’s press releases page isn’t filled with news items that should prompt a 40% rally.
Here’s what happened with NIO in the past month, in a nutshell. First, NIO released its June and second-quarter 2023 EV delivery update. The company delivered 10,707 vehicles in June, indicating a decline from the 12,961 vehicles delivered in June of 2022. Furthermore, NIO delivered 23,520 vehicles during this year’s second quarter. Again, there’s a downtrend here since NIO delivered 25,059 vehicles in the year-earlier quarter.
The other major piece of news pertaining to NIO this month is that a company associated with the government of Abu Dhabi in Saudi Arabia invested a large sum of money in NIO. That’s fine, but only time will tell whether NIO chooses to deploy this capital wisely. Possibly, the market is pricing in the potentially positive impact of NIO’s capital infusion. Yet, there’s no guarantee that it will result in improved delivery numbers, revenue, or profits.
Is NIO Stock a Buy, According to Analysts?
Turning to Wall Street, NIO stock comes in as a Moderate Buy based on seven Buys and four Hold ratings. The average NIO stock price target is $10.38, implying 29.5% downside potential.
If you’re wondering which analyst you should follow if you want to buy and sell NIO stock, the most profitable analyst covering the stock (on a one-year timeframe) is Ming-Hsun Lee of Bank of America (NYSE:BAC) Securities, with an average return of 49.06% per rating. Click on the image below to learn more.
Conclusion: Should You Consider NIO Stock?
Interestingly, it looks like financial traders are extremely bullish on NIO stock, but Wall Street’s foremost experts aren’t all convinced, and the average NIO price target signals downside ahead. I tend to concur with the analysts’ lukewarm sentiment.
Besides, there wasn’t enough overwhelmingly positive news to justify a one-month 40% rally. Therefore, I’m not considering NIO stock right now, and I would prefer to wait for a pullback of at least 20% before entering into a trade.
