Shares of Nio (NYSE:NIO) are up today on reports that the Chinese government is incentivizing consumers to buy electric vehicles (EVs). NIO stock rose 2% in pre-market trading.
The South China Morning Post (SCMP) is reporting authorities in Beijing are encouraging banks to lower lending rates to drive sales of electric vehicles, which benefits EV manufacturers such as Nio. The news also comes as Covid-19 restrictions ease in the country, enabling EV companies to ramp up their manufacturing.
Year-to-date, NIO stock is down 38% and trading at about $21 per share.
What Happened With NIO Stock
According to the SCMP article, China’s Ministry of Commerce is pushing for more financial incentives to increase electric vehicle sales. The incentives apply to fully electric, plug-in hybrid and hydrogen fuel-cell vehicles. China’s state-owned banks and commercial lenders have been told to lower vehicle loan rates to spur adoption of EVs.
The news stands to boost sales for Nio and other electric vehicle makers in China, which has their stocks rising today. According to reports, some Chinese banks have reduced the interest rates they charge on loans for EVs by 30 basis points over the past month. Some loan rates have been cut in half over the past two months, dropping from 6% to 3%. Banks are also allowing consumers to finance up to 85% of the purchase price of a new EV, an increase from 80% previously.
Why It Matters
China’s government is prioritizing the sale of electric vehicles. Studies show it is one of the few economic sectors that is holding up well amid a broad economic downturn in the country. Gross domestic product (GDP) growth is China has softened in recent months and the nation’s housing market is under pressure.
However, electric vehicle sales remain robust with demand growing among consumers. Banks in China issued $8.1 billion of electric vehicle loans during the month of June, a nearly 40% increase from May, according to data from Hua Chuang Securities.
China’s government is also considering extending a tax exemption on electric-vehicle purchases to further incentivize people to buy them. EV buyers in the country have been exempted from a 10% purchase tax since 2014. Beijing had planned to eliminate the incentive at the end of this year. An extension of the tax exemption would also benefit Nio and help to lift its domestic sales in China.
What’s Next for NIO Stock
NIO stock has gotten a nice bounce on today’s news. The move higher is welcomed given the big decline in its share price so far this year. How the incentives within China impact Nio’s finances will become known in coming months when the automaker reports its earnings.
On the date of publication, Joel Baglole 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.
