Down 66% in This Bear Market, Can Nio Stock Recover in 2023?

What happened

Nio (NIO 0.35%) stock has lost a whopping 66% in value since the market peaked on Jan. 3, 2022, according to data provided by S&P Global Market Intelligence. The S&P 500 index has fallen roughly 18% since.

The electric vehicle (EV) stock may have gotten off to a good start this year, but is this a dead cat bounce? Given the challenges that Nio faced in 2022 and continues to face, can the stock recover in 2023?

So what

Surging COVID-19 cases in China, lockdowns, and their effect on the economy proved to be the biggest hurdles to Nio’s growth in 2022. Although the company’s deliveries rose steadily through the year, it wasn’t a smooth northward-bound graph thanks to a shortage in the supply of key parts and production suspensions amid COVID-19 lockdowns.

More notably, Nio’s vehicle and gross margins were under considerable pressure in 2022 as prices of parts and batteries surged. It was, however, a global problem that hit nearly every EV manufacturer as prices of key metals like lithium, nickel, and cobalt skyrocketed.

Nio proved its resilience as it quickly ramped up production and its deliveries hit a record monthly high of 14,178 units in November. Three models the EV maker started selling in 2022, the ET7 sedan, the ES7 SUV, and the ET5 midsize sedan, drove sales higher.

Unfortunately, with China’s reopening some weeks ago triggering a fresh outbreak of coronavirus cases, Nio slashed its fourth-quarter deliveries outlook in December to between 38,500 and 39,500 vehicles from its previous guidance of between 43,000 and 48,000 units. That further sent the EV stock crashing.

Nio, however, beat its fourth-quarter delivery estimate and delivered a record quarter with 40,052 deliveries, up 51% year over year. And that is one of the reasons why Nio stock has rallied almost 16% since the beginning of 2023.

Now what

So can Nio stock recover in 2023? I believe it can, simply because Nio doesn’t have a demand problem. Despite all the challenges in 2022, Nio delivered 122,486 vehicles, up 34% from 2021. Its ET5 sedan, which Nio started delivering on Sept. 30, 2022, already made it to the top 10 best-selling premium sedans in China in December. In fact, only two all-electric vehicles made it to the top 10, and both belong to Nio: the ET5 and the ET7.

Nio launched two new models at its Nio Day event in December, has more launches lined up for 2023, and is currently focused on delivering more cars to meet demand. It also plans to expand its footprint in Europe this year.

Of course, the Chinese auto market could still feel pressure for some months given the persistent supply chain and COVID-19 constraints. Nio, however, is unlikely to stop growing given its strong product lineup and focus on gaining market share, and that’s what makes this beaten-down EV stock a must-watch for 2023 and beyond.

Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nio. The Motley Fool has a disclosure policy.