Shares of Nio (NYSE:NIO), the Chinese luxury electric car company that seemed headed higher after strong July deliveries, are now headed in the opposite direction. On August 9 the stock price fell 5%. It fell another 1% overnight, as an analyst cut his price target to $27.50/share and fears grew the home market may be slowing. However, NIO stock has regained that overnight loss in pre-market and early morning trading and is now up 1%.
Yet fear and uncertainty still surround NIO stock today.
The fear comes from Tesla (NASDAQ:TSLA), which reported a 64% drop in China sales for July, which it blamed on a scheduled upgrade to its Shanghai factory. While analysts expected a drop-off, Tesla failed to match its lowered expectations.
Head Fake?
Investors and analysts are always skittish. There are innocent and not-so-innocent reasons for the action. There are reasons for both Nio bulls and bears to be concerned.
Bulls could be fearing something I have written about regularly, the high price of Nio cars and the ability of companies like BYD (OTCMKTS:BYDDY) and SAIC-China to undercut it. BYD, backed by Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B), sold four times as many cars in China this July as Tesla. SAIC has a joint venture with General Motors (NYSE:GM) and its Wuling Hongguang Mini has been taking the market by storm.
But there are also reasons for bears to be concerned. Nio sales in its home market were strong during July. The company has begun exporting cars to Europe. And Nio’s battery swap stations can swap out a battery faster than it would take the owner to recharge it.
NIO Stock: What Happens Next?
Nio stock will remain volatile as analysts and investors follow the path of both the Chinese and global electric vehicle markets.
Nio is much smaller than Tesla, with a market capitalization of $32 billion compared to Tesla’s $887 billion. Sales don’t have to grow much for bulls to become excited. But so long as Tesla dominates the high end of the Chinese market, Nio’s price ceiling will remain low. In that case, Nio investors might want to watch the European EV market even more closely than the home market.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
