Stock Analysis & Ideas

Here’s Why NIO Stock Slipped 5% on Tuesday

Story Highlights

NIO stock declined 5% on August 9 as the Inflation Reduction Act could put NIO in a disadvantageous position. Also, the latest China Passenger Car Association data might not have been received well by market participants.

Chinese electric vehicle (EV) maker NIO Inc. (NYSE: NIO) saw its shares decline about 5% on August 9. The Senate passing the Inflation Reduction Act might be weighing on the stock.

The Inflation Reduction Act aims at extending the $7,500 per vehicle tax subsidy that has existed since 2009. However, the proposed legislation requires at least half of the battery raw materials and components used in EVs to be produced or assembled in the United States to be eligible for the credit.

The bill, if signed by President Joe Biden, can put EV makers like NIO in a disadvantageous position compared to their peers within the EV industry.

Moving on, China Passenger Car Association (CPCA) has also released data for July vehicle deliveries. Going by the data, NIO, which delivered only 10,052 vehicles in the month, is widely lagging behind its arch-rival BYD (BYDDF) in China. BYD delivered 163,042 cars in July, according to the CPCA data. This might have also weighed on investor sentiment, pulling the stock down yesterday.

The EV stock has already been grappling with multiple challenges like supply-chain disturbances and production delays due to China’s zero-COVID policy.

The company is also facing the risk of getting delisted under the Holding Foreign Companies Accountable Act along with nearly 270 other Chinese companies listed in the United States. These Chinese companies are required to comply with U.S. auditing requirements until early 2024 to avoid delisting.

Meanwhile, it’s not all dull and gloomy for the EV maker. Its vehicle deliveries in July rose 26.7% over the prior year. The deliveries include 7,579 premium smart electric SUVs and 2,473 premium smart electric sedans.

Also, the company is making efforts to improve the supply channels and accelerate production. NIO saw a slowdown in the production of its ET7 and the EC6 in July 2022 due to the shortage of casting parts.

Is NIO Expected to Rise? Investors Weigh In

Turning to Wall Street, analysts seem to be optimistic about NIO, which has a Strong Buy rating based on 11 Buys. The average NIO price target of $33.04 implies 67% upside potential.

Similarly, financial bloggers are 84% Bullish on NIO. Hedge funds also have positive sentiment toward the stock, as they have collectively bought 3.5 million shares of NIO in the last quarter.

Conclusion: Is NIO Stock a Buy, Sell, or Hold?

NIO stock is already down about 37% year-to-date, as the company production levels have been hurt by external factors. However, this stock has taken in some optimism with a decent delivery figure for July. In the meantime, it may be wise for investors to adopt a wait-and-see approach, as the current EV industry landscape is being affected by the Inflation Reductions Act, COVID-19 uncertainty, supply-chain disturbances, and other macroeconomic challenges.


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