China’s CSI 300 Index has been in a downtrend since February 2021. While the Chinese government has been hesitant to provide stimulus in the past, the country is running out of options to boost its economy. That could provide a helping hand to Nio (NYSE:NIO).
Officials from China have suggested that consumer stimulus will be necessary in order to reach yearly economic growth targets. This comes amid a housing crisis and rampant deflation. Declining housing prices have especially affected consumer demand, as property accounts for a large percentage of household net worth in China.
Last week, Reuters reported that China would allocate about $41.40 billion of ultra-long treasury bonds to support “equipment upgrades and consumer goods trade-ins.” Some of these funds would go toward raising the subsidy for qualified buyers of new energy passenger cars to between 15,000 and 20,000 yuan.
“If we can stabilise the ‘four guardians’ of auto, home appliances, household products and catering, we can stabilise consumption,” said Xu Xingfeng, an official of the Commerce Ministry’s Consumption Department.
Nio Stock: China Plans to Raise New Energy Vehicle Subsidies for Qualified Buyers
The $41 billion will go into play by the end of August. It’s well needed, as retail sales grew by 2% in June, the lowest growth in 18 months.
China’s rough economic conditions have been especially detrimental for Nio, as it sells luxury vehicles. Consumers are less likely to buy luxury vehicles and tend to settle for more affordable ones in times of economic hardship.
Nio’s lack of profitability is another major issue for the Chinese electric vehicle (EV) company. The company is still in its growth phase, meaning that investments to fuel further growth are crucial. These include costs to support a European expansion, battery swap stations and autonomous driving efforts.
Nio hasn’t yet announced the date for its second-quarter earnings, although analysts expect revenue to grow by 96.76% to $2.376 billion. At the same time, Nio will more than likely remain unprofitable, with analysts forecasting an EPS loss of 28 cents compared to a loss of 51 cents a year ago. Net income is expected to be a loss of $670 million compared to a loss of $840 million a year ago.
Wall Street expects Nio to report its first profitable year in 2027, meaning that NIO stock shareholders will need to remain patient.
On the date of publication, Eddie Pan did not hold (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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
