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Weighing All Factors, Nio Stock Could Trade Sideways From Here


Nio (NYSE:NIO) stock kicked off July with a bang, with its strong June delivery numbers. But the pop from this news didn’t last long. A few days later, shares in the China-based electric vehicle company began to drop once again.

NIO stock
Source: Sundry Photography / Shutterstock.com

As InvestorPlace’s David Moadel broke it down July 8, Nio sold off on the heels of China’s recent crackdown on Didi Global (NYSE:DIDI). The concern here is the possibility of further regulatory actions against China-based companies that trade on U.S. stock exchanges. In fact, there’s already one on the table: plans to close the loophole that allowed Chinese companies to list in the U.S. in the first place.

The incident with Didi could foreshadow future possible crackdowns from the Chinese government. Investors could again take stock of the risk that comes with investing in Chinese-based companies. This may make it difficult for this high-flyer to maintain its premium valuation (Nio trades at a forward price-sales ratio of 13.8x at today’s prices).

Yet, enthusiasm from retail investors (thanks to recent positive company-specific news) may be enough to offset this. Shares could hold steady from here, until the next major news helps it sink (or soar) once again.

Company-Specific News Remains Positive for Nio Stock

The crackdown fears may be boosting the bear case. Yet, the most recent company-specific news is still on the side of the bulls. Two recent items indicate things are still looking up for the EV maker.

First, there’s the return to sequential vehicle delivery growth. In June 2021, Nio delivered 8,083 vehicles, up big from May 2021 (6,711 vehicles). We won’t know until we see delivery numbers for July and August. But it may now be over its global chip shortage headwinds.

Second, the update on its battery swapping station plans. Nio now projects having 4,000 of them globally by 2025. Bulls on the stock see its unique “battery-as-a-service” strategy as something that will allow it to gain an edge over competitors such as Tesla (NASDAQ:TSLA).

In short, there’s plenty still in play to convince investors to remain “long and strong” this stock. But it may not be enough to send it back above $50 per share, much less to its past highs of nearly $67.

But it could be enough to counter the bearish narrative that’s now emerging around China-based, U.S. listed companies. At least until we see the next major bullish (or bearish) development.

Retail Enthusiasm Versus Crackdown Fears

According to stock market pundits like Jim Cramer, the crackdown news means it’s time to sell Nio stock. Professional investors are getting more bearish on China stocks following the Didi Global incident. Yet the opinions of the so-called smart money aren’t the only ones that matter in today’s stock market.

Case in point: as seen on Reddit’s r/WallStreetBets subreddit, retail traders are finding ways to rationalize the crackdown news. It doesn’t make a difference whether these counter-arguments are rooted in reality. Or, if they’re a case of looking at things with rose colored glasses. If enough retail bulls are willing to overlook the risks at hand, this may be enough to counter a possible continued pullback for Nio.

Until, that is, we see another major change that could be bad for NIO stock. For example, what if Nio’s July delivery numbers fall short? The bull case will take a hit and the stock could get pushed back down below $40 per share.

If the company’s upcoming launch in Norway ends up being a bust, forget about the belief that this aspiring Tesla killer is set to become a global name in EVs.

Conversely, the next big change could be good for the stock. China may walk back on some of their crackdown plans. This may convince the bears that the Didi incident was merely a one-time event.  If Nio delivers blockbuster numbers for August and releases more news that hints that it’s still in the running to be a Tesla killer, the stock could climb back to its high-water mark.

Until The Next Major Development, Expect Shares to Hold Steady

The Didi Global incident may have cut short the recent Nio rebound. But at the same time, this positive news has softened the blow. Otherwise, shares would be trading at prices below today’s levels.

With the opposing bull and bear narratives surrounding Nio stock right now, expect it to hold steady, at least until the next major development. Yet, it’s anyone’s guess whether the next major development (whether China crackdown related, or company-specific) will be positive or negative.

On the date of publication, Thomas Niel 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.

Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.

Article printed from InvestorPlace Media, https://investorplace.com/2021/07/nio-stock-weighing-all-factors-could-trade-sideways-from-here/.

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