Be careful! The latest NIO stock rally will be short-lived

Despite mixed quarterly results, Nio (NYSE:NIO) shares rose after the September 7 earnings announcement. The key factor behind this was a slew of analysts upgrading shares of the China-based electric vehicle (EV) maker. .

Confidence is growing again that ramping up the company’s production will lead to a big jump in sales for the rest of 2022 and into 2023. Before you decide to get involved, though. and chasing recent gains, it is difficult to lock in results next quarter that will meet today’s heightened hopes.

The acceleration may still not yield the expected results. This could cause the stock to bounce back recently. In the long term, Nio’s global expansion may also fall short of expectations. With the high growth heavily valued, it may not take long to reverse the new bullish trend today.

Why NIO Stock Is Earning After Earnings Soar

Nio may have come out on top in terms of revenue for the second quarter, but the results weren’t as exciting. As expected, China’s pandemic shutdown continues to depress growth, on a year-over-year basis and especially on a sequential basis.

Even worse, the electric vehicle maker reported a higher-than-expected net loss. Compared to the previous quarter, net loss per share increased 316.4%. However, instead of reacting negatively to the Q2 results, the market is instead focusing on the company’s outlook for Q3, which calls for a return to speed.

This resulted in NIO stock rising slightly shortly after earnings but an analyst upgrade sent the stock soaring. Like InvestorPlace’s Eddie Pan reported September 12, two analysts (Deutsche Bank’s Edison Yu and BofA’s Ming-Hsun Lee) reiterated their “buy” ratingand have raised their price target.

Both analysts expect deliveries to accelerate significantly in Q4. This is due to a combination of increased production, plus Nio launching new models. However, while the situation may be improving, it may not be to the extent alluded to by the stock’s most recent spike.

How is its latest increase reversible

As the buzz returns to NIO stock, it looks like now is the time to buy, before continuing again. Unfortunately, there is much to suggest that its latest rise may be short-lived in the wild. With a bounce back above $20/share, the market is now priced in the possibility of a return to acceleration which is almost certain.

For the stock to continue to move higher, or at least avoid falling lower, Nio needs to hit both its own Q3 delivery volume projections, plus hit Q4 numbers that are in line with seller’s expectations. It is possible to achieve its Q3 target. Its monthly deliveries since June have been above 10,000. Q4, however, could be an order of magnitude higher.

To meet Edison Yu’s 2022 estimate, Nio needs to deliver 57,000 vehicles between October and December. This is nearly double the Q3 delivery estimate.

With increased production, new models and Chinese government encourages, this looks like a cinch. However, other factors, such as China’s economic slowdown, may partly counteract these positives.

In turn, causing the number of deliveries in the coming months to fall short of expectations. Even if it’s almost missed, it could cause the stock to recover from recent gains.

Verdict on NIO . stock

Nio stock is rated D in Portfolio Scoring Machine. In addition to the short-term drop, the stock could continue to underperform in the years to come. The long-term bulls believe that the high growth rate will continue. Even if growth in its domestic market returns, they are confident that its international expansion will keep it in high-growth mode.

But only time will tell whether the first major expansion abroad (in Europe) will be successful. It may face greater competition in the Chinese market. In Europe, it is not only facing market leadership Tesla (NASDAQ:TSLA), but there is also competition from incumbent European luxury brands.

Failure in Europe could result in them having to cancel their North American expansion plans. Without the global expansion, Nio will be hard-pressed to sustain, much worse growth than its current valuation.

Given the downside risk that it may not deliver in the next quarter, you may not want to chase the recent rally in NIO stock.

Originally published on InvestorPlace. Read here.

Featured image credit: Image by Pixabay; Bark; Thank you!

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