Image Source: Nio.com

Nio (NIO) stock price has rebounded this month even after the company unveiled weak financial results. After tumbling to a low of $7.04 earlier this month, the stock has jumped by more than 30% to almost $10. The shares remain about 85% below the highest level in 2021.

Has Nio bottomed?

Nio is an embattled electric vehicle company that has a strong market share in the premium market in China. The most recent results, which I wrote about here, showed that the company’s revenue in the first quarter came in at RMB 10.7 billion, a 7.7% YoY increase. The revenue dropped by 33.5% from the previous quarter.

Nio’s margins also thinned during the quarter. Its gross margins came in at 1.5% in Q1, sharply lower than the previous quarter’s 3.9%. It had a gross margin of 14.6% in the same quarter in 2022. Nio attributed the sharp drop in margins to a change in product mix and the rising battery costs. It also boosted its R&D costs by over 74%.

Nio, like other EV companies, is facing significant headwinds and tailwinds going forward. Good things first. Battery costs are expected to drop in the coming months, thanks to the falling prices of lithium, cobalt, and nickel.

There are several headwinds. First, the Chinese economy is not doing well. As I wrote here, analysts a Goldman Sachs downgraded the country’s GDP forecast for the year. They expect that the economy will expand by just 5.4% this year. This is important since Nio makes most of its money in China.

Second, the company is facing substantial competition from international and Chinese vehicle brands like Xpeng and Li Auto. Third, there are signs that its growth momentum is fading, which explains why the company decided to slash prices of all its models.

Nio stock price forecast

(Click on image to enlarge)

Is it safe to buy Nio? The daily chart shows that the Nio share price bottomed at $7.25 between May and June this year. It formed a double-bottom pattern, which is usually a bullish sign. The stock has moved above the descending trendline shown in green.

At the same time, the stock has cruised above the 50-day and 100-day moving averages. The two are about to make a bullish crossover pattern while oscillators have drifted upwards. Therefore, at this stage, I believe that the rewards outweigh the potential risks. As such, there is a likelihood that the stock will jump to the next key resistance point at $13.11 (January high).

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