In the last day, month, and year, Chinese electric vehicle favorite Nio (NYSE:NIO) stock fell steadily.
At every attempt to rally, Nio would fade as it met the 20-day simple moving average. Markets fretted over Nio’s delisting risks on the New York Stock Exchange. The company tried but failed to alleviate concerns by listing on the Stock Exchange of Hong Kong.
After oil prices surged to levels not seen since 2008, clean energy investors sent Nio stock almost $20. But by the end of the week, Nio fell with the other Chinese EV manufacturers. This included XPeng (NYSE:XPEV) and Li Auto (NASDAQ:LI).
What do markets not like with Nio?
February Deliveries Weigh on Nio Stock
In February, Nio posted a 9.9% year-over-year increase in deliveries. The 6,131 figure raises its 2022 delivery to 15,783 units, up by 23.3% from a year ago. Last month, Nio’s flagship ES6, a five-seater premium SUV, accounted for 3,309 of the total. It delivered 1,738 five-seater EC6s and 1,084 ES8, a seven-seater SUV.
Nio slowed production in February due to the Spring Festival holiday (Jan. 31 to Feb. 6). It also prepared its production lies to ready delivery of the ET7 this month. The ET7 is a transformative milestone. The base model has a 75 kWh battery, while the long-range version will have 100 kWh and will have a range of up to 1,000 kilometers.
Despite the company’s product refresh with the ET7, markets are hastily dumping Nio stock for another reason. Investors fear the suspension of Didi’s (NYSE:DIDI) Hong Kong listing threatens Nio’s listing.
Delisting Worries
Last week, China’s Cyberspace Administration of China (CAC) informed Didi that its proposals to prevent security and data leaks fell short. Didi immediately paused its efforts to seek a Hong Kong listing. It will not list on the Asian exchange by this summer, as originally planned. Didi needs the listing because China ordered it to delist from the U.S. markets.
Didi’s problems have nothing to do with Nio. On March 9, it was successfully listed on the main board of the Hong Kong exchange. Still, the Securities and Exchange Commission may order hundreds of Chinese firms to delist as early as 2024.
Nio shareholders need not worry. They may transfer their share ownership to that listed on the Hong Kong markets, assuming their brokerage supports foreign holdings.
Nio, which fell by 9.57% on March 11, is not the only stock to drop. The delisting fear spread to XPeng, which lost 12.1%. Li Auto stock dropped by 14.7%. KraneShares Trust (NYSE:KWEB), an exchange-traded fund that tracks China internet stocks, fell by 10% largely on selling panic for Alibaba Group (NYSE:BABA) and Baidu (NASDAQ:BIDU).
Opportunity
Nio may allay investor fears when it reports quarterly results on March 24 after the market closes. It has a modest debt-equity ratio of 0.7. In its upcoming report, Nio will need to report strong positive cash flow and declining operating costs. Interest rates are rising several times this year. The cost to manage debt will rise.
Nio needs to demonstrate strong demand for its flagship ES6 model. Investors will look for the company to reveal strong pre-orders for the ET7.
Unfortunately, Nio will probably post a quarterly earnings loss. As Nasdaq falls into bear territory, investors are dumping companies whose operating costs exceed revenue. They are avoiding highly indebted firms and shunning high-flying, speculative sectors. EV companies fall into those categories.
Nio and XPeng both rely on supplier Guangdong Hongtu Technology for a 6,800-ton die-casting machine. It announced a partnership with Tesla’s (NASDAQ:TSLA) supplier, LK Technology. LK Technology will produce a massive 12,000-ton machine. This will greatly reduce manufacturing costs.
Risks
Nio closed at a 52-week low last week. The stock risks further decline if the negative sentiment continues.
According to Stock Rover’s quant scores, Nio has weak growth, value, and quality. February’s slower deliveries suggest that the company’s growth will continue in 2022.
Nio stock value is fair. After shares declined, the price is better but not enough to grade the company as a value investment. Nio’s stock quality will not improve until its operating expenses fall faster than revenue. Once its return on investments rises, its quality score will also improve.
Chinese stock delisting risks are not going away. This concern circulated since 2018. Fears are intensifying. After Russia invaded Ukraine, China’s publicly neutral position is disturbing. At first, China did not label Russia’s action as an invasion.
Furthermore, just before the Beijing Winter Olympics began, China and Russia signed a 30-year energy deal. If the Western countries discover that China is supplying an alternative to the SWIFT sanctions, relations between the U.S. and China may worsen.
Your Takeaway
Geopolitical risks hurt China-based stocks. Investors did not spare Nio, despite its value for offering green solutions.
Investors cannot predict when selling pressure will ease for Nio. Investors should consider sitting it out for now. Wait until after the company posts quarterly results. By then, markets will have decided on Nio’s fair value.
Investors who do not buy Nio stock now will avoid further downside risks.
On the date of publication, Chris Lau 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.
