You must beware! The latest surge in NIO shares will be short-lived

Even a small disappointment could send NIO stock down

Nio (NIO) stock climbed back above $20 per share following analyst updates. Despite the renewed optimism, shares of the China-based electric vehicle maker could easily return these latest gains. Given the downside risk if Nio fails to deliver, you may not want to continue this recent rally.

Despite mixed quarterly results, Nio (NYSE: NIO) stock rose after its September 7 earnings release. The main factor behind this was a series of analyst upgrades for shares of the China-based electric vehicle (EV) maker.

Confidence is rising again that the company's ramp-up of production will drive a surge in sales for the remainder of 2022 and into 2023. Still, before you decide to jump in and Continuing its recent rally, it's hardly a lock that will culminate in the next quarter to live up to today's high hopes.

Scaling up may still not produce results as expected. This may cause the stock to return recent gains. In the long term, Nio's global expansion may also fall short of expectations. With high growth strongly priced in, it may not take much for today's renewed uptrend to reverse.

Why NIO Stock Jumped After Earnings

Nio may have beaten its revenue in the second quarter, but the results were hardly encouraging. As expected, the pandemic shutdowns in China continued to slow growth, year-over-year, and especially on a sequential basis.

Worse still, the electric vehicle maker reported a higher-than-expected net loss. Compared to the prior year quarter, net loss per share increased by 316.4%. Yet, instead of reacting negatively to the second quarter results, the market has instead focused on the company's outlook for the third quarter, which calls for accelerated growth.

This caused NIO shares to rise slightly just after earnings, but analyst updates pushed the stock higher. As InvestorPlace's Eddie Pan reported on September 12, two analysts (Deutsche Bank's Edison Yu and BofA's Ming-Hsun Lee) reiterated their "buy" ratings and raised their price targets.

Both analysts are optimistic shipments will reaccelerate significantly in the fourth quarter. This is due to a combination of ramping up production and the launch of new vehicle models by Nio. Still, while the situation may be improving, it may not be to the extent implied by the stock's latest spike.

How its latest rise could reverse

As the buzz returns to NIO stocks, it may seem like it's time to buy, ahead of a continued comeback. Unfortunately, there's plenty to suggest his latest push could be short-lived. With its return above $20 per share, the market now views a possible reacceleration in growth as a virtual certainty.

For the stock to continue to rise, or at the very least avoid falling, Nio must both meet its own Q3 shipments projection and hit Q4 numbers in line with side expectations. seller. Achieving your Q3 goal may be achievable. Its monthly delivery numbers since June are over 10,000. Q4, however, may be a larger order.

To meet Edison Yu's estimate for 2022, Nio must deliver 57,000 vehicles between October and December. This is almost double the expected deliveries in the third quarter.

With increased production, new models, and incentives from the Chinese government, this may seem like child's play. However, other factors, such as the economic slowdown in China, could somewhat counteract these positive aspects.

In turn, the delivery figures for the coming months are below expectations. Even if it's a near miss, it can cause the stock to return its recent gains.

The verdict on NIO Stock

Nio stock gets a D rating in my portfolio evaluator. Beyond the short-term pullback, equities could also continue to perform poorly in the years to come. Long-term bulls believe the strong growth will continue. Even as its domestic market growth returns, they are internally confident...