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NIO Stock: 2 Big Reasons Nio Is Struggling Today

InvestorPlace logo InvestorPlace 9/20/2021 Samuel O'Brient
a night time view of a city street: A Nio (NIO) store at night in Shanghai, China. © Source: Robert Way / Shutterstock.com A Nio (NIO) store at night in Shanghai, China.

The electric vehicle boom that has carried markets throughout the course of the year appears to be on a dip, with stocks such as ChargePoint (NYSE:CHPT) and Panasonic (OTCMKTS:PCRFY) both beginning the week in the red. Adding to the mix is Chinese multinational EV producer Nio (NYSE:NIO), whose week is not off to a good start. There are multiple factors that are dragging NIO stock down.

a lit up city at night: A Nio (NIO) store at night in Shanghai, China. © Provided by InvestorPlace A Nio (NIO) store at night in Shanghai, China.

What Happened With NIO Stock?

 Trading has just kicked off for the week, but as of this writing, Nio stock is currently down 5% for the day. Last week saw this stock decline, falling 1.2% for the week and dropping off sharply this morning.

As it stands, there are two primary reasons for Nio stock’s decline. The first stems from an industry competitor who has fallen victim to the supply chain shortage. Li Auto (NASDAQ:LI), a fellow China-based EV producer, has also seen its stock fall today after it issued a warning that this year’s projected deliveries might not be met due to a failure to obtain enough microchips. Li’s declines have been worse than Nio’s so far, falling 6% as of this writing.

The second reason centers around the recent problems for Evergrande (OTCMKTS:EGRNF), China’s second-largest property development corporation. The sprawling conglomerate is also the country’s most indebted developer, and the company has recently alluded that it is having trouble repaying its debts. This news sent instant shockwaves through China’s financial system as the Hang Seng, one of China’s leading stock market indices, declined by more than 3%.

Why It Matters

For Chinese companies across most sectors, this presents a grim outlook for what the immediate future could bring. For companies whose business involves importing and exporting luxury items, it could be particularly troubling.

The supply chain crisis is by no means unique to the EV industry, but if poses significant effects for Li Auto, it stands to reason these effects will span to Nio as well. While Li predicted it would only be short 1,000 vehicles for the quarter, that figure is enough to generate the kind of uncertainty that sends companies like Nio stock into the red, at least temporarily.

The Evergrande crisis has already proven it has power to disrupt markets far beyond China’s, as it has caused stocks across multiple sectors to decline. While no companies will be immune if the market disruptions in China continue, there is no immediate cause to believe that Nio will among the most affected. Recent reports indicate that the company may be expanding into Europe through partnerships, and this recent market disruption may provide a great opportunity for exactly that.

What’s Next for Nio Stock?

Investors shouldn’t be panicked by Nio’s recent downturn. Far from it, in fact. Last week, InvestorPlace analyst Louis Navellier cited Nio stock’s decline as a “great buy opportunity,” noting the power and sustainability of the EV boom.

That prediction is sound. Nio stock has plenty of upside potential, particularly as it looks to expand in underdeveloped markets. There is no reason to look at it through anything other than a bullish lens.

On the date of publication, Samuel O’Brient did not have (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.

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