Nio (NYSE: NIO) stock price is still feeling the heat as the divergence between EVs and traditional ICE vehicles continue. It is now languishing near its all-time low as ICE companies like Toyota and Tata Motors hover at their all-time highs. Nio is not alone as other EV stocks like Tesla, Mullen Automotive, and Rivian plunge.

Nio, the Chinese electric vehicle company, has made a lot of progress in the past few years. It has moved from a small startup to a company manufacturing thousands of vehicles per month. The most recent report revealed that it delivered over 55k vehicles in the third quarter and 10,055 in January. In total, the company has manufactured and sold over 459k vehicles.

Nio hopes to continue boosting production this year as it launches newer and cheaper car models. This is a positive thing as the company works to gain market share in key markets like China, Southeast Asia, and Europe.

Most importantly, the company is expanding its business at a time when it is working to boost its margins. It shed over 10% of workers in 2023 and is now mapping out a plan for further job cuts. While these are tough decisions, companies argue that they are important to help them become more profitable.

This is crucial since Nio is a cash incinerator that burns about $35k for all vehicles that it sells. As such, boosting efficiency will help it become more profitable at a faster pace. 

However, the company is facing a mountain of challenges ahead. The Chinese market is highly saturated with hundreds of companies fighting for market share. As a result, firms like Nio, Li Auto, and Tesla have turned to price wars.

Worse, the company’s European business is also not doing all that well. While Nio does not report its European sales, the management has noted that they were unsatisfactory. Besides, many people in Europe still prefer local brands like Renault and Stellantis. There are also concerns about potential tariffs by the European Union, which could hurt its sales. 

Most importantly, there are concerns about the future demand for EVs after the early adoption phase. Some analysts believe that demand will continue slowing down in the coming months. They cite the recent news that Hertz was selling off its EVs as it pivots to ICE vehicles.

Fundamentally, my expectation is that Nio will work to boost its sales this year. Besides, it has a strong balance sheet after it raised billions of dollars from the Middle East in 2023. However, the challenge is that the EV market is now highly saturated and I expect that the situation will worsen this year.

Turning to the daily chart, we see that the Nio share price has been in a downtrend for a long time. It has already given up the key support level at $7, its lowest level in December and June last year.

Notably, the stock has been forming a head and shoulders pattern, which is a popular bearish sign. It has already moved below the neckline of this pattern. Therefore, the outlook for the stock is still bearish for now and I expect it to crash to the next key support at $5.

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