Can Nio’s stock outrun market pessimism haunting China tech?

Nio’s [NIO] stock has felt some of the drag of the tech pullback. The electric car maker’s US-listed shares dropped 6.11% on Friday as part of the wider market rout overtaking tech stocks, closing the week at $27.35. Since the start of January, Nio’s stock has seen a 13.7% decline (as of Friday 21 Janaury’s close), and with the general pessimism around tech stocks right now, some might be wondering if the bottom has been reached.

Still, there’s some news to get investors' motors running. Not least Nio’s recent announcement that its self-driving chip start-up Black Sesame Technologies would work with BlackBerry to develop a self-driving platform.

What’s happening with Nio’s stock

Nio’s stock has dropped over 55.85% over the past 12 months, reversing from over $64 a share to under $30 in January. Contagion from the tech selloff is clearly hurting the stock, but the longer-term decline can be pinned on increased scrutiny from Beijing of its tech companies. High profile examples include ride-hailing app Didi delisting from the US exchange to re-list in Hong Kong following regulator pressure.

As a business, Nio has largely escaped unscathed from the regulator scrutiny that has hit China tech stocks. Obviously, should the regulator decide to put the screws on the automobile maker, it could spell trouble. And, as we’ve seen in 2021, even regulatory pressure on other companies can spill over to other US-listed China tech stocks.

On the other side, the Securities and Exchange Commission started a three year countdown last October that could see Chinese companies delisted from American exanages if they don’t provide access to their books. Beijing has been reluctant to provide access for its data-heavy companies on data security concerns. Should coverage of this intensify, then the threat of delisting could affect Nio’s US-listed stock.

Can growing sales boost Nio’s stock

Some interesting news for Nio at the start of January: Black Sesame Technologies, the Nio back self-driving chip company, announced that it had chosen BlackBerry QNX to provide the technology to ‘power its latest chipset developed for autonomous driving’, according to a press release. This could help Nio’s self-driving ambitions in the long-term, but what’s really going to help Nio in the short to mid-term is growing sales.

In December, Nio delivered 10,489 vehicles, up 49.7% year-on-year. For the full year 2021, total deliveries were 91,429, up 109.1% year-on-year.

Sales should continue to increase thanks to China’s booming EV market. Last year sales of EVs in China topped over 3m, and, according to the China Passenger Car Association, are forecast to grow to 6m this year.

A big driver is the end of government subsidies which will come to an end in 2023, says Bloomberg’s Hyperdrive column. With EV prices having gone up due to an increase in the cost of parts and raw materials, motorists thinking of shifting from gasoline to EVs have an additional reason for getting in before the subsidies come to an end.

Under the hood, the electric automaker’s business is also heading in the right direction. In the third quarter, gross revenue came in at RMB9,805.3 million ($1,521.8 million), up 116% year-on-year. Net loss was RMB835.3 million ($129.6 million) , down 20.2% from the third quarter of 2020. Adjusted net loss for American depositary shares were RMB1.82 (US$0.28) a share, down 85.7% year on year.

So while there are losses, they are substantially down on the same time last year. And for investors interested in backing an electric car manufacturer, Nio’s share price is substantially cheaper than Tesla’s [TSLA]. But clearly, the stock isn’t without risk. A relaxation in regulatory pressure for the China tech investment theme should help. Whether that comes is another thing entirely.