Nio Stock Forecast: NIO trading lower for fourth straight day

Nio (NIO) stock may decline for a fourth straight session on Thursday. Shares of the Chinese electric vehicle maker have lost 1.5% to trade at $10.85 in Thursday's premarket. This is 8.8% below the close of $11.81 on January 12. Pricing competition from Tesla (TSLA) seems to be the culprit inspiring pessimism among traders, but several other factors also reside in the background.

Nio stock news: Tesla raises the stakes

The Shanghai Composite rose 0.5% on Thursday, so it is hard to blame NIO's lacklustre performance on anything related to Chinese macros. The main focus seems to be Tesla's price cuts. When these were first introduced in December in the Chinese market, most observers saw it as a sign of weakness. They surmised that demand for Tesla vehicles in China was falling, so Tesla was responding with price cuts. However, now that those price cuts have been extended to Japan, Australia, South Korea and the United States, analysts appear to believe Tesla is simply seeking to shore up market share as the leading EV producer in the world. 

This thesis bodes poorly for Nio and other Chinese EV companies, including Xpeng (XPEV) and Li Auto (LI). While Tesla was on average producing gross profits circa $9,000 per unit, its current price cuts will trim that figure closer to half that measure. Greatly reduced unit economics for Tesla, to be sure, but  Nio and its Chinese counterparts have all been producing hefty earnings losses, so there is nothing to cut. Tesla's price cuts mean that Nio and company now have less competitive pricing at a time when they all need to greatly expand sales volumes in order to close that gap. Nio stock lost $-0.35 per share in GAAP earnings in its latest quarter, which amounted to about $610 million.

Tesla cut its price for Model 3 and Model Y vehicles in China by between 6% and as much as low double-digit percentages on various other models.

Nio stock news: Bad macros crowd out risk

The United States federal government is on pace to hit its statutory debt limit of $31.4 trillion on Thursday. This means that the US Treasury is not permitted to sell more treasury bonds to make up the difference with tax revenues. The US Congress, split between a Democratic Party-controlled Senate and a Republican-controlled House of Representatives, now needs to raise the debt ceiling or the US government will not be able to fulfill all spending obligations set out in its most recent budget. In actuality, the government will not face major difficulty until May or June, according to experts, but the House Republicans are intent on refusing to raise the debt limit without a major cut to government spending programs that it disagrees with.

This will set off a major showdown between the White House and Congress. Either way, the US government will give special attention to making debt payments in order not to provoke the ire of bond markets. One negative for the equity market is that the federal government will likely postpone payments to federal employee retirement schemes until an agreement is reached, which would likely reduce equity volume on the margin.

The market is also dour from comments made by a big bank chief. JPMorgan's (JPM) CEO, Jamie Dimon, said the US legislature should "not play games" with the creditworthiness of the United States government from his perch at the World Economic Forum in Davos, Switzerland. Additionally, he expressed his opinion that the Federal Reserve would need to raise interest rates until it reaches the range of 5.25% to 5.5%. 

"I actually think rates are probably going to go higher than 5%... because I think there's a lot of underlying inflation, which won't go away quick," Dimon said.

Raising rates to this level would almost definitely have a chilling effect on equity markets since higher rates discount the value of stocks' future cash flows to a greater extent. As a riskier play, this is even more the case with unprofitable names like Nio.

Nio stock forecast

At the moment there is only one thing to watch from Nio stock. Shares of NIO need to retest and then overtake the recent range high from January 12 at $11.81. Otherwise, shareholders are in for another downturn. Consolidation is possible at this level, but if NIO stock drops below the 21-day moving average (currently at $10.87), then it is time to sell. A drop below that moving average will almost assuredly send Nio stock down to retest the $9.50 support level and possibly even the low of $8.38 (a 52-week low) from October 24.

NIO daily chart