To The Moon

• Nio(NIO) is down 4% today on news that European rival Volkswagen's(VWAGY) Audi has filed a trademark infringement lawsuit against it.
• At the same time, Jeffries has cut its forecast for electric vehicle (EV) sales this year and next, putting pressure on all EV stocks.
• The lawsuit from Audi threatens to hurt Nio's European expansion plans.

Shares of Nio(NYSE:NIO) are down 4% today on news that the Chinese electric vehicle (EV) maker is facing legal action from rival Volkswagen’s(OTCMKTS:VWAGY) Audi over an alleged trademark violation. Reports of the lawsuit come at the same time Jeffries slashed its price target for EV sales, setting NIO stock up for a very bad trading day.

Ironically, today’s downturn comes a day after Nio’sshare price rose more than 13% after a product launch in which it revealed its long-awaited ES7 electric SUV. So far in 2022, NIO stock has fallen more than 40% to trade at less than $20 per share.

What Happened With NIO Stock

The most consequential news is that Audi has filed a lawsuit in a Munich court against Nio, alleging the Shanghai-based company has infringed on its trademark. Specifically, the company claims Nio’s decision to name two of its models ES6 infringes on Audi’s trademark for its own S6 and S8 model vehicles.

Nio, whose sales are predominantly in China, is now pushing into the European automotive market. It entered Norway last year with plans to begin sales in Germany, the Netherlands, Sweden and Denmark this year. Nio has said it expects to initiate its sales in Germany with its ET7 electric sedan.

At the same time, Jeffries Financial Group lowered it forecast for worldwide EV sales this year to 8.7 million from 9 million previously. It also lowered its 2023 estimate to 11.5 million, down from an earlier estimate of 11.8 million. Jeffries cited the impact of inflation and higher interest rates as the reasons for its diminished outlook.

Why It Matters

The Audi lawsuit is the latest blow to Nio’s share price this year. In recent months, the company has also had to contend with an investigation by the U.S. Securities and Exchange Commission (SEC) into its accounting practices. Nio has also faced slower-than-expected production due to Covid-19 lockdowns in China and was forced to list its shares on the Singapore Exchange over concerns that it might be delisted in New York.

For the electric vehicle sector, Jeffries sales downgrade also comes at a bad time. In recent days,Ford(NYSE:F) announced that it is recalling 50,000 of its Mustang Mach-EEV over safety issues. Additionally, Tesla(NASDAQ:TSLA) has come under public fire over its safety record and the autopilot system found in its vehicles. At the same time, Chinese automakers have been hobbled by production shutdowns due to Covid-19 lockdowns.

What’s Next for NIO Stock

It will be important to see if Nio can resolve the trademark dispute with Audi quickly and with little financial penalty for the automaker. A protracted legal battle will not help NIO stock or the company’s European expansion. In the meantime, Nio’s share price continues to come under pressure and fall lower.