Positive NIO Stock News Depends on State of China’s EV Market

Jeff Siegel

Written By Jeff Siegel

Posted May 20, 2024

NIO Stock news can definitely trigger some investors. 

Earlier this month, I wrote a piece entitled, “Is NIO Stock Doomed to Fail.”

nio stock news

In it, I made the argument that while the company has made a lot of progress in terms of producing some pretty impressive electric vehicles and EV battery technology, the stock had struggled due to heavy losses and concerns about its cash burn rate.  

Here’s a segment from that article …

Take NIO (NYSE: NIO), for instance.  This Chinese EV maker lost $835 million between April and June of 2023.  And back in 2020, when the company almost ran out of cash, a state-owned investment fund ponied up $1 billion to acquire 24% of the company.  That was then followed by the state-owned China Construction Bank that gave the company a $1.6 billion line of credit.

Today NIO stock trades for around $5.50 a share.  A far cry from its high of nearly $62 back in 2021. 

I caught a lot of flack for that article.  Mostly from loyal NIO investors. I don’t think it was, although the price of NIO stock hasn’t really moved much since I wrote the article.  And no amount of positive or negative NIO stock news has affected the stock.

I’m still not  particularly bullish on the stock.  And I’m actually starting to wonder if NIO stock could be in even more trouble than I initially thought.

Will NIO Stock News Remain Negative Given Downturn in China’s EV Market?

I read an article in Bloomberg this morning which discussed China’s EV producers taking longer and longer to pay their suppliers.  This is never a good sign, and NIO was at the top of the list.

Nio took around 295 days to clear its receipts payable, the vast majority of which are owed to suppliers, at the end of 2023 versus 197 days in 2021, according to the most recent available data compiled by Bloomberg. Xpeng, another US-listed Chinese EV maker, was taking 221 days to honor its obligations to vendors and related parties, up from 179 days, the data show.

Elon Musk’s Tesla, by comparison, only took around 101 days, and that period has remained largely stable in the past three years.

supllier holdup

The extended payment cycles are indicative of the pressure many automakers are under in China, where economic growth remains sluggish and consumer sentiment is subdued. That’s translated into less robust demand for electric cars, and the once fast-growing market is now beset with intense price wars and crunched profit margins.

I’m still bullish on the transition from internal combustion to vehicle electrification. And I don’t doubt that China will continue to support its EV industry in an effort to monopolize the global market.  But the question is, how long can China afford to do this?  Moreover, how much longer will retail investors stick it out.  Not to mention venture funds and government-backed funds, like CYVN Holdings. If you recall, the Abu Dhabi government controls CYVN. It ponied up $2.2 billion for NIO back in mid-December.  Here’s how the stock has performed since then …

nio stock stagnant

Now understand, I don’t have any ill will towards the company.  NIO makes some pretty impressive cars.  And I recently read in NIO stocks news that the company just launched  a cheaper electric car.

While high-end luxury models tend to be more profitable, there are only so many people who can afford them.  

NIO named it the Onvo.  It costs around $30k.  Or roughly $4,000 less than the Tesla Model Y. 

nio stock stagnant

My gut tells me that China is more likely to support EV makers that  can deliver cheaper electric vehicles for the masses. This is the strategy that will allow the Middle Kingdom to monopolize the EV market.  Whether or not NIO will be a part of that is still unknown.  I do believe he company’s decision to pursue a cheaper model could be the thing that keeps it alive. I suppose we’ll find out soon enough.  Although until we get some clarity on sales, we’ll continue to view NIO stock from a distance.

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