Nio (NYSE:NIO) has had one of the most incredible turnarounds in recent memory. The company’s initial public offering (IPO) was priced at $6 per share, and NIO stock stayed in the single digits following the IPO.

While Nio made a decent case about being able to beat Tesla (NASDAQ:TSLA) in China, the Chinese company’s unprecedented marketing budget and gargantuan operating losses had most folks unloading its shares.

Soon NIO stock slumped into penny-stock land. With the arrival of the pandemic, it appeared that Nio might go bankrupt. . Nio, which was losing losing hundreds of millions a dollars per year, managed to raise new funds, however, and lived to fight another day.

But that’s not the crazy part. What is unbelievable is that NIO stock has gone up thousands of percent since  bottoming. Although the company’s main business continues to lose money, traders are treating Nio as though it’s the second coming of Tesla.

Judging Nio’s Progress

From one perspective, it might seem like Nio is succeeding. Last quarter, for example, the company delivered 20,060 vehicles. That’s more than double the 8,224 EVs that it delivered in the quarter before the pandemic began.

As Nio has scaled up its business, its operating results have improved. The company used to have a negative gross margin, meaning its revenue was lower than its vehicle production costs.

Now, however, its gross margin is solidly in the black. Overall, though, Nio still loses a substantial sum of money. For example, for Q1,  it had a net loss  of $69 million. However, to the company’s credit, its losses have dropped meaningfully, as it used to lose hundreds of millions of dollars each quarter.

Plus, Nio no longer has cash flow issues because it has been able to issue stock at such high prices. The company has more than $7 billion of cash and equivalents on hand. While Nio’s growth is likely to slow down soon, particularly if the chip shortage drags on, its cash will give it time to try to enlarge its business.

Competition and China Concerns

Nio faces heavy competition. China has a ton of  other well-funded electric-vehicle makers. Several of these, such as Xpeng (NYSE:XPEV) and Li Auto (NASDAQ:LI) are already publicly listed. Nio also has to worry about Tesla And the traditional automakers are launching increasingly compelling EVs of their own.

Another issue  is the fallout from the DiDi Global (NYSE:DIDI) mess. Recently,  Didi, a ride-sharing service, made its long-awaited public debut on the New York Stock Exchange.

Days later, the Chinese government hit investors with a bombshell: It was suspending Didi from the country’s app stores. With Didi being unable to sign up new customers, it’s unclear how much long-term value it will have. DIDI stock plunged around 25% on the news.

Large Chinese stocks, such as Alibaba (NYSE:BABA) and JD.com (NASDAQ:JD), have already been selling off for months because Beijing is increasingly meddling in the Chinese economy. The selloff will only intensify following DiDi’s issues.

There’s little indication that the Chinese government has any negative surprises in store for the nation’s EV companies. But at this point, many investors are dumping Chinese stocks indiscriminately.

The Verdict on NIO Stock

The biggest negative attribute of NIO stock is that it’s too expensive. On the other hand,  Tesla has long been preposterously overvalued based on any traditional metric. Any investor using normal evaluation rules would have said that Tesla stock was obscenely expensive since about 2014. And yet, it is not very far removed from its peak levels.

Maybe NIO stock will become another exception to the rules. But I’m more skeptical of Nio’s chance. The company doesn’t have a figure like Tesla CEO Elon Musk who is   keeping speculators entranced by Nio’s every move.

Nio also doesn’t have the same degree of first-mover advantage in China that Tesla had in the U.S. Additionally, the Chinese automaker has made serious missteps, such as nearly running out of working capital last year. Those blunders make its ability to emulate Tesla questionable.

At its current valuation, Nio should already be strongly profitable and selling hundreds of thousands of cars. Instead, it is unloading a modest number of cars and continues to lose money.

But traditional limits no longer seem to apply in the market this year. That said, particularly after what just happened to DiDi, I definitely recommend selling NIO stock.

On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.