uploads/2020/07/nio-stock-downside.jpg

Why NIO Stock Investors Should Brace for More Downside

By

Updated

  • NIO stock has seen some selling pressure over the last week. While the stock is still up 236% for the year, it has fallen almost 18% from its 52-week high of $16.44, which it hit on July 13.
  • Tesla stock has also been volatile. EV (electric vehicle) stocks have seen wild intraday price swings.
Article continues below advertisement

Will NIO stock fall more?

NIO (NYSE:NIO) stock has fallen almost 10% this week. So far, the stock is down 18% from its intraday high of $16.44. However, the stock is still up 75% for the month and 236% for the year. NIO’s better-than-expected second-quarter deliveries, a credit line from Chinese banks, and news about a stake increase by Tencent helped the stock rise to higher price levels. Notably, NIO and other EV plays like Tesla (NASDAQ:TSLA), Workhorse (NASDAQ:WKHS), Nikola, and Blinks Charging have also rallied sharply this year.

EV stocks

What has astonished valuation purists is the fact that some of the EV companies, like Nikola, don’t even have a prototype of their upcoming cars. However, the companies have seen surging pre-orders. In the past, Tesla stock has also rallied after reporting strong pre-orders for its vehicles. The Cybertruck, which launched last year, has strong pre-orders. Notably, Tesla stock has looked unstoppable. Earlier this week, Tesla’s market capitalization soared past $300 billion. NIO’s market capitalization was $15.4 billion based on Wednesday’s closing prices.

Article continues below advertisement

Is there more downside ahead for NIO stock?

Positive momentum has been driving EV stocks, like NIO, to higher levels. However, over the last week, the stock has been very volatile. NIO stock has fallen sharply from its intraday highs. In a previous article, I discussed that investors should sell NIO stock and book profits.

Markets haven’t been valuing EV stocks on solid valuation metrics. They have been valuing the stocks based on expectations of an explosion in EV demand over the next decade. After the sharp rally in US tech and growth stocks, EV stocks look ripe for a correction. There has been some selling pressure in growth stocks and the Nasdaq Composite Index (NASDAQ:QQQ) has come off its recent highs.

Is trade too crowded?

The July Bank of America global fund manager survey showed that US tech and growth stocks, which also include EVs, are the most crowded trade ever. Many analysts have said that the rally in EV stocks isn’t totally backed by fundamentals. They think that the rally looks more like a bubble.

NIO stock was trading down in pre-market trading today. I won’t be surprised if the stock falls more from these levels.

Advertisement

More From Market Realist