China-based electric vehicle manufacturer Nio (NYSE:NIO) is finally waking up to the idea that vehicle price cuts could be a winning strategy. Nio’s management doesn’t seem to think that battery swapping should be a free service. Nio’s pricing policy changes shouldn’t inspire confidence in NIO stock traders.
I don’t always agree with analysts. However, I agree with Nomura/Instinet and CMB International Securities analysts, who downgraded Nio and reduced their price targets on Nio shares.
NIO stock recently caught a bid as it jumped from $8 to $9 and change. Yet, I don’t expect to see any follow-through. The best policy in 2023 is to sell the rips, or better yet, simply refrain from investing in Nio.
| NIO | Nio | $335.02 |
NIO Stock Popped Despite Negative Earnings Results
Generally, stock traders rotated into risk-on assets in the first half of June. This could help to explain the aforementioned bump in the Nio share price. Nio’s subpar first-quarter 2023 results certainly didn’t warrant investor optimism. Just to recap:
- Nio’s revenue declined 33.5% quarter over quarter.
- Unfortunately, Nio is still unprofitable. The automaker posted a net earnings loss of 42 cents per American Depositary Share (ADS), versus a loss of 18 cents per ADS in the year-earlier quarter.
- Additionally, Nio’s vehicle margin fell from 18.1% in the year-earlier quarter, to 6.8% in 2022’s fourth quarter, and then to just 5.1% in Q1 of 2023.
All of this makes Nio’s sudden 180-degree shift from stubbornly refusing to cut its EV prices, to now deciding to slash its EV “prices by 30,000 yuan ($4,200) for all models” (per Reuters), seem like an act of desperation.
Clearly, Nio’s management didn’t want to follow in Tesla’s (NASDAQ:TSLA) footsteps with vehicle price cuts; they did so because they felt they had to.
Nio Ends Free Battery Swapping Services
Now, we’re getting a better understanding of why some analysts would choose to downgrade Nio. The company is a reluctant latecomer to the EV price reduction trend.
Nio will have to accept less money per sold vehicle, which will probably eat further into the company’s already deteriorating margins.
Also on the topic of pricing policies, Nio has officially stopped offering free battery swapping services to qualified vehicle buyers. Interestingly, Nio CEO William Li was quoted as stating, “The adjustments had been discussed internally for quite a while and we took advice and suggestions from some users.”
I can’t imagine that any users would suggest that Nio should stop providing free battery swapping services. In any case, if this is Nio’s attempt to boost its bottom line, it’s a misguided one.
All along, Nio has been an evangelist for battery swapping (as opposed to conventional EV battery recharging). Offering battery swapping services for free was a savvy way to encourage adoption of this relatively new concept.
However, Nio is evidently turning tail on this idea in apparent attempt to shore up its revenue. To me at least, the whole “we took advice and suggestions from some users” thing sounds like an excuse.
Nio’s sudden change in battery swapping policy feels desperate, much like the company’s switch-up in its EV price cutting policy.
Don’t Buy the Rips in NIO Stock
As we’ve seen, Nio’s quarterly results were less than stellar. Furthermore, Nio’s policy change-ups seem abrupt and wrongheaded.
Still, NIO stock is bound to catch a bid from time to time. But then, that’s probably true of any stock in a long-term downtrend. So, don’t be too eager to invest in Nio now.
And if you already have a share stake in Nio, feel free to take profits if you’re in the green. After all, your luck could run out at any moment.
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.