The ADR of the Chinese EV (electric vehicle) maker Nio (NYSE:NIO) closed 15.7% lower on Monday following the re-election of President Xi Jinping for a third term. Notably, Nio ADR, which is down over 70% year-to-date, has slipped below $10. Despite this massive correction, geopolitical and regulatory risks in China and the economic slowdown pose challenges and could restrict the recovery in the short term.
It’s worth mentioning that investors also dumped the ADRs of other Chinese companies, including Alibaba (NYSE:BABA) and Xpeng (NYSE:XPEV), on increased risks, indicating that the negative investor sentiment on Chinese stocks could further play spoilsport.
In response to this decline in value for Nio, Mizuho Securities analyst Vijay Rakesh stated that China’s concerns, tighter technology controls, and a potential slowdown would impact EV (electric vehicle) makers globally.
The analyst said, “President Xi’s Committee, which was announced over the weekend, has more loyalists, potentially increasing the risk of further zero-Covid restrictions impacting auto production.” He added, “We believe concerns of extended restrictive COVID policies and increasing US technology restrictions could make upside from better fundamental outlooks for China EV OEMs less dependable.”
Along with geopolitical concerns, the increasingly competitive landscape in China and weak consumer demand could further ruin the show for Nio. The analyst highlighted that Tesla’s (NASDAQ:TSLA) recent price cut in China indicates a slowdown in demand and competition.
Rakesh stated, “We believe used and new car pricing declining, with inventory at dealerships climbing and increased worries on auto loan delinquencies, has raised concern on weaker consumer spending against a backdrop of rising rates.”
Is NIO a Buy, Sell, or Hold?
The steep decline in its value and strong fundamentals (solid competitive positioning in the premium segment and battery tech) keep analysts bullish on Nio stock. It has received seven unanimous Buy recommendations for a Strong Buy rating consensus. Moreover, these analysts’ average price target of $32.97 implies 248.9% upside potential.
Further, TipRanks’ chart and technical analysis tool reveal that NIO stock could continue to trend lower.
The graph below shows that NIO stock is trading below its average price (simple moving average), indicating that market participants are pessimistic about Nio stock.
Meanwhile, the short-term moving average (20-day moving average) has crossed below the medium-term moving average (50-day moving average), implying a downtrend as investors are selling Nio stock at a price well below its average.
Bottom Line
Nio’s long-term fundamentals remain strong, and the company is likely to benefit from growing EV adoption, its solid battery tech, expansion into new markets, and product launches. However, the near-term geopolitical and macro challenges, competition, and negative technical signals indicate that Nio stock could remain under pressure.
