Nio (NIO) Stock Analysis November 2022

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At the time of writing this analysis, Nio Inc (NIO) stock was valued at $10.47, down 1.87% from its previous close at $10.67.

However, the stock price succumbed to volatility throughout the week, falling 5.5% just minutes after the market opened on Thursday before electric vehicle (EV) stocks rallied again.

Technical Analysis

US-listed Chinese stocks rose earlier this week after US President Joe Biden and Chinese leader Xi Jinping reaffirmed their commitment to tighten ties between the two nations at a three-hour meeting in Bali, Indonesia.

On Tuesday, electric vehicle (EV) stocks rose, buoyed by hopeful inflation data in the US, which came in better than analysts had predicted.

Hoping that the slowdown in inflation would lead the Federal Reserve to cut aggressive interest rate hikes, investors were enthusiastic. The S&P 500 rose 0.25%, while the Nasdaq Composite added 0.8% on Tuesday afternoon.

The electric vehicle (EV) market reflected investors’ enthusiasm, too. Nio’s share price rose 2.8%. Vehicle charging company ChargePoint Holdings also rose 3.6%, while EV battery brand Quantum Scape soared, gaining 6.1% in the afternoon.

However, China-based Nio’s US depository tumbled on Wednesday morning, with shares dipping as low as 9%. Around 11:00 a.m. ET, their price was at least 8.1% down.

Nio and other EV companies in China have been affected by Beijing’s strict zero-Covid policy, which has brought strict lockdowns.

While the company sharply increased its fourth-quarter profit expectations, estimating that they would rise 36% and 52% compared to the prior period, the Chinese government stepped up pandemic disease control measures.

Peking University was shut down after finding a single Covid-19 case, reaffirming China’s plan to continue with the strict policy.

Lockdowns have hit production and consumer demand. Companies as big as Mercedes-Benz Group have lowered prices for their high-end models despite efforts to expand their lineup of electric vehicles in China.

Nio, which has reported mounting losses, relies on its manufacturing performance to boost profitability and stay afloat.

On Thursday, just minutes after the market opened, Nio shares fell 5.5%. However, after 1:00 p.m., they began to recover as EV shares started to gain ground sharply, turning into the green.

Conclusion

Although Nio stocks rallied sharply on Thursday, recovering from a major drop the previous days, they appear to be getting closer to hitting single digits.

A round of lockdowns would greatly affect the manufacturing sector, and China has made it clear that it is heading in that direction.

If production doesn’t increase, Nio’s guidance points down. Despite the company’s plans to expand its product portfolio and manufacturing capacity, high expenses can hurt its business.

Furthermore, the uncertainty extends not only to investors but also to the general public. Therefore, although the company relies on its ET5 to grow in the coming months, market expectations do not favor the manufacturer.

Nio also plans to enter the US auto market in late 2025, but the latest indicators suggest a recession will hit the country soon.

Even if China lifts the strict Covid-related rules and manufacturing industries start producing again, many factors continue to pose risks to the market, including high prices.

Nio has done its best to overcome the headwind that hits all car manufacturers. However, battery prices have also risen sharply in 2022. Also, even though it is rapidly expanding its production, Nio needs to spend on research and development, new technologies, and design. While this can pay off in the long run, it could also hurt its results in the short term.

In other words, Nio rallies only reflect volatility because there are no conditions to support a sustained rise.

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