After pulling back due to disappointing delivery numbers, shares in China-based electric vehicle maker Nio (NYSE:NIO) have found support at around $10 per share. Investors bullish on NIO stock may believe this is a great entry point.

In their view, the stock could hold steady at these price levels, then zoom back later this year. The launch of new vehicle models, plus China’s post-Covid economic recovery, will bring massive growth re-acceleration, throwing shares back into the fast lane.

But this bull case for Nio ignores the fact that the company is facing rising competitive challenges in its home market. Management for now may not be volunteering to lower prices, in response to Tesla’s (NASDAQ:TSLA) highly-publicized vehicle price cuts.

Pretty soon though, conscientious objector Nio could get drafted into the China EV price war. Put simply, that’s bad news for the stock.

NIO Stock and the Inevitability of Price Cuts

It’s not as if those who believe that the company is immune from the competitive threat if Tesla fails to provide some semblance of an argument to back up their position.

NIO stock bulls will cite rising EV adoption rates in China as the key reason why it will meet or possibly beat deliveries/revenue expectations for 2023. Nio President Qin Lihong, who has publicly stated that the EV maker will not implement price cuts, as it is “not an ideal solution” for Nio’s premium brand, makes a similar argument to back up his view.

That is, Lihong also points to accelerated EV adoption in China as something that will mitigate price cut-related challenges. However, it’s questionable whether this argument holds up to the facts. For one, Chinese EV sales growth is set to decelerate, not accelerate this year.

Due to factors like the end of China’s EV subsidies, sales growth is set to slow down from 96.3% in 2022 to just 35% in 2023, according to analysts at UBS. In addition, Tesla’s price cuts are clearly working in China, to the detriment of local EV brands. Following suit with cuts may be inevitable for Nio.

Lower Prices (for Both Vehicles and Shares)

Between decelerating industry growth, and Tesla’s success in grabbing a greater amount of Chinese EV market share, in order to find demand for its planned ramp-up in production, not to mention grab market share as it expands into Europe, Nio may need to start lowering prices.

As mentioned above, this is bad news for NIO stock. There are two reasons for this. First, of course, is the fact that lower vehicle prices will have a negative impact on margins. This would be less of an issue if Nio was profitable, but that continues to not be the case.

Sell-side consensus calls for the company to report losses in both 2023 and 2024, although some forecasts call for Nio to begin reporting positive earnings next year. However, with lower vehicle prices, and hence, lower margins, analysts may end having to walk back these estimates. Doing so could push shares lower.

Second, vehicle price cuts may end up being only partially effective. Growth, even if boosted by lower vehicle prices, could still come up short of current expectations (87%). Fully dashing any hopes that this company is another Tesla in the making, such an outcome could cause a further de-rating for shares.

Bottom Line

Despite my argument above, fans of this stock may point to Nio’s “battery-as-a-service,” or BaaS, revenue model as something that could save the day here.

In a nutshell, the EV maker sells vehicles to consumers but leases them the batteries. The benefit to buyers is that this lowers the vehicle purchase price, and enables them to “swap” the batteries at battery swap stations, eliminating the need for time-consuming battery recharges.

However, I’m skeptical whether BaaS provides any sort of competitive edge. Based on its delivery figures last month compared to Tesla, this aspect of the overall Nio “story” seems to be a non-factor.

Let’s face it. Nio is in a tough spot, and the situation is likely to worsen. Ahead of another likely drop, consider it best to sell/avoid NIO stock.

NIO stock earns a D rating in Portfolio Grader.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.