Stock Analysis & Ideas

Nio (NYSE:NIO) Stock: Caught up in China’s COVID Chaos

Story Highlights

Nio stock has been volatile due to the uncertainty pertaining to China’s COVID-19 policies and the related impact on supply chain. The company’s ability to meet its Q4 deliveries and revenue target will be impacted if China doesn’t ease its Zero COVID Policy.

The U.S.-listed shares of electric vehicle (EV) maker Nio (NYSE:NIO) and other Chinese companies trended higher on Tuesday due to hopes of easing of restrictions as the country is ramping up vaccinations for the elderly citizens. Protests against the government’s stringent COVID policy have erupted across China. Concerns that lockdowns could continue to hurt supply chains and production have impacted investor sentiment for Nio and its peers.

The 3.8% rise in Nio stock on Tuesday could also be related to a CNBC report that revealed a partnership between the EV maker and tech giant Tencent (TCEHY), under which the two companies will work together on several areas, including autonomous driving and high-definition mapping. While Nio stock was up yesterday, it has plunged 67% year-to-date due to several reasons, including the COVID-19 uncertainty in China, delisting concerns, inflation, and other macro challenges.

China’s COVID Stance Will Impact Nio’s Growth

Earlier this month, Nio reported a 174.3% year-over-year rise in its October deliveries to 10,059 vehicles. However, October deliveries fell 7.5% compared to September as the company faced operational challenges in its factories and COVID-induced supply chain disruptions in certain regions in China.

Continued supply chain issues have impacted Nio’s growth this year, even as demand for its vehicles remains strong. The civil unrest in China due to the country’s strict COVID restrictions is expected to force the government to ease its policies.

If the Chinese government continues to enforce strict measures amid rising COVID-19 cases, then Nio’s ability to meet its Q4 guidance might be hampered. The company expects Q4 deliveries growth in the range of 71.8% to 91.7%. If Nio fails to meet its deliveries and revenue target, its losses might mount and further drag down the stock.

Is Nio a Buy or Sell?

Jefferies analyst Johnson Wan expects a “challenging year” for China’s automakers due to rising rivalry, the removal of EV subsidies, and higher lithium prices.

Wan feels that Nio’s profitability might continue to be hit by high fixed costs if deliveries don’t pick pace. Wan, who has a Hold rating on Nio stock, slashed his price target for Nio stock to $11.26 from $42.30.

While Wan is on the sidelines, most analysts remain bullish about Nio stock. Overall, Nio earns the Street’s Strong Buy consensus rating based on 10 Buys and three Holds. The average Nio stock price prediction of $20.39 implies 94.2% upside potential.

Conclusion

China’s measures to deal with the rising COVID-19 cases will have a major impact on Nio’s performance. Nio stock might decline further if COVID-led supply chain pressures hurt the company’s efforts to meet its Q4 targets.

Nonetheless, most Wall Street analysts believe in the company’s ability to grow in the attractive EV space over the long term and expand further in markets beyond China.

Disclosure 

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