Nio stock price analysis: is this fallen angel a buy?

Nio (NIO) stock has maintained its fallen angel status as it remains deeply in the red this year. It has dropped by 38% this year, underperforming other popular Chinese electric vehicle companies like XPeng, Li Auto, and BYD. 

Nio has faced challenges

Nio has become one of the top fallen angels in the electric vehicle industry. Once valued at almost $100 billion, its valuation has dropped to about $12 billion today. 

This performance happened because of the rising competition in the electric vehicle (EV) industry in China. Some of its top competitors are firms like BYD, Li Auto, Polestar, and even Tesla.

At the same time, it has faced scrutiny from short sellers. In 2021, it was attacked by Grizzly Research, who accused the firm of manipulating its financial results. While these claims have faded, its American shares have a short interest of about 8%.

The company has also been a big cash incinerator since it has never turned a profit. In the past three years alone, it has had a combined net loss of over $8.2 billion, making it one of the top loss-making companies in the industry.

These losses were because of its big investments in manufacturing, retail stores, and in battery swapping locations. 

Nio has also had some manufacturing challenges that have made it miss targets regularly. For example, it delivered just 30,000 vehicles in the first quarter, down from the estimated 34,000.

Additionally, like other EV companies, it has had to lower prices to stay competitive in the home market. Its attempts to expand its business in other countries have not been all that successful.

Read more: Nio stock price could enter beast mode, thanks to these catalysts

Nio has made progress

Despite these challenges, Nio has made progress, demonstrating that there is demand for its vehicles.

Its annual revenue has grown from $1.1 billion in 2019 to over $7.8 billion last year, a 609% increase in about five years.

Also, its deliveries have continued rising. For example, it delivered 57,373 vehicles in the second quarter, a big increase from the 23,520 it delivered in the same period last year. 

The company has also updated its lineup by launching ONVO, a brand that has become an instant hit. It started to sell the first model in September, with its order book being sold out. It is now working to launch its second model earlier this year.

The most recent results demonstrated that Nio’s top-line growth was doing well as its revenue rose by 98% to RMB 17.5 billion. This revenue was also a big 76% increase from the previous quarter. 

Nio also expanded its margins, with the gross margin improving from 1% to 9.7%. Also, the company narrowed its net loss from RMB 6 billion to RMB 5 billion in the last quarter. This trend may continue as the company works to become profitable in the coming years.

At the same time, it is cutting costs and has raised cash from investors, meaning that it will not need to dilute its shareholders. Most recently, it received RMB 3.3 billion from Hefei New Energy Automobile Investment and other firms. It also received $5 billion from CYVN, an Abu Dhabi company.

Nio stock price analysis

NIO chart by TradingView

The daily chart shows that the NIO share price formed a double-bottom pattern at $3.65. In most cases, this is one of the most bullish patterns in the market.

Nio moved above the double bottom’s pattern’s neckline at $6, its highest point on May 15. It has remained above the 50-day and 100-day moving averages. It remains slightly below the 23.6% Fibonacci Retracement point.

Therefore, the stock will likely continue rising in the next few months. If this happens, the next point to watch will be at $7.70, its highest level on September 30th. A move above that level will point to more gains, with the next point to watch being the 50% retracement point at $10. 

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