There is no doubt that Nio (NYSE:NIO) stock faces significant challenges ahead. While I, along with many of my colleagues, like Nio’s long-term business prospects, there are other considerations.
It is one of the leading Chinese electric vehicle (EV) names on the market. And the market is massive. I’ll get to that in a moment but I first should acknowledge that Nio isn’t the only player attempting to dominate the Chinese market.
In fact, not a single Nio vehicle was among the top-10 selling EVs in China in 2021. That’s a stark reminder that the company faces stiff competition in its home country. And there’s other news to contend with that relates to the U.S. market.
NIO Stock Delisting in the Future?
The possibility exists that Nio might end up being delisted from the New York Stock Exchange in the near future. The idea that Chinese companies could be delisted from major U.S. exchanges has remained a persistent threat.
That threat is becoming more likely. Chinese EV firms are taking action. Nio plans to list its shares on the Hong Kong Stock Exchange (HKEX). It recently received approval to list its shares by introduction, which means it won’t issue new shares or raise funds in doing so.
Both Li Auto (NASDAQ:LI) and XPeng (NYSE:XPEV) have listed their shares in Hong Kong. Those companies are both EV manufacturers. And Chinese rideshare firm DiDi (NYSE:DIDI) will delist from the New York Stock Exchange while pursuing a Hong Kong listing.
For its part, Nio has said it will continue to trade primarily on the NYSE. But its Hong Kong shares will begin trading in Hong Kong on March 10. Further, the company also applied for a similar secondary listing in Singapore.
That leaves investors guessing at its future in short.
A Big Chinese Market
It’s important to remember that while Nio shares are primarily listed in the U.S., it sells vehicles in China.
Nio is a Chinese firm selling its products to a Chinese consumer base. And that market is an incredibly valuable one. China long ago passed the U.S. as the world’s largest vehicle market, doing so back in 2009.
It also boasts massive EV penetration in the vehicle market. The Chinese government expects 20% of all vehicles on its roads to be EVs by 2025. UBS (NYSE:UBS) anticipates that by 2030 three in five vehicles sold in China will be electric.
That should lead investors to at least question Nio’s business.
U.S. Investors Funded Nio’s Expansion
Nio is still listed primarily in the U.S. market. It has utilized U.S. capital and U.S. investors to fund a significant portion of its early growth.
However, it is planning to move toward the Hong Kong and Singapore markets as well. That implies that investors nearer its shores could soon be funding its business to a greater degree.
The company doesn’t sell vehicles in the U.S. yet. It has plans, but those are merely possibilities. The point is that Nio would surely like to expand its revenue base. But for now, Nio may simply utilize the U.S. as an investor base.
So imagine a scenario in which Nio delists. It would then be drawing equity funding from Hong Kong and Singapore markets. However, it would have drawn its early funding from the U.S. That wouldn’t bode well for U.S. sales if and when those begin.
What to Do With NIO Stock
It may not seem like it from this article, but I still believe in NIO stock.
But it’s important to realize that the company faces certain realities pertaining to funding and sales. It is a Chinese company during a time when China isn’t well received in the U.S.
You could make the argument that Nio abused the U.S. system if it ends up delisting the future.
All in all, this means that NIO stock still has long-term potential but also full of contemporary risk.
On the date of publication, Alex Sirois 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.
