Nio Stock Has Potential, But Will Continue to Face Challenges

Nio (NYSE:) is a leading electric-vehicle (EV) maker. It is a Chinese company, but Nio stock trades as an ADR on the New York Stock Exchange. And like some of the other EV makers, this company is having a difficult time facing the challenges that are emerging as the industry matures.

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Shareholders must be incredibly disappointed as the NIO stock price has lost over 70% of its value since this past March. Many analysts expect the stock to continue to trend lower.

The Good, The Bad and the Ugly

To be sure, NIO is a company that has a lot of potential, but it is facing some difficult challenges and will probably continue to do so for at least the next few years.

The good news is that the company is in a promising industry that is benefitting from governmental action. The Chinese government, as well as other governments around the world, are seeking ways to address pollution, and electric vehicles are considered to be a big part of the solution. Analysts expect explosive growth in this industry over the next decade, and that would certainly help companies like NIO.

The bad news is that . In 2018, the net loss was over $1.4 billion. In addition, analysts expect the losses to continue at least until next year.

The ugly news is that NIO stock’s losses have increased significantly over the past few years. In 2016, losses were $381 million. The losses in 2017 were more than twice as much at $740 million. This is obviously a trend that can’t continue forever. No matter how promising the industry is, at some point if the company isn’t turning a profit then it will not survive.

What’s Next for NIO stock?

Despite trading sideways or consolidating recently, NIO stock is still in the downtrend that began on July 26th. The forces of supply are still in control of the market.

There has been resistance around the $3.25 level. There is resistance here because it was a support level last month. Support becomes resistance because those who sold it at the support level are losing money once the level breaks and the stock goes lower. They tell themselves that if it rallies back up to the level, they will sell it so they can get out of the trade and break even. (Sound familiar?) This sell interest at the level is what creates the resistance.

Longer-term, if the stock continues to trend lower look for support around the $2.50 level. These levels were support in June. After they held, a rally of 60% occurred as NIO stock traded all the way up to $4.

As of this writing. Mark Putrino did not hold a position in any of the aforementioned securities.

The post appeared first on InvestorPlace.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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