Will the Didi drama be a drag on the Nio share price?

The Nio share price [NIO] might be up 234.8% in the last 52 weeks to $46.34 at the close on 12 July. But this only tells part of the story. Since the start of 2021, the Nio share price has stalled — it’s fallen 13.4% in the year to date and 30.8% from its all-time high of $66.99, recorded on 11 January.

As with many of the big Chinese technology and electric vehicle (EV) players listed in the US, the Nio share price has been caught up in the headlights of US-China tensions and Beijing’s anti-monopoly crackdown.

Last week, Chinese regulators accused ride-sharing service Didi Chuxing [DIDI] of collecting personal data without permission. Didi has been told to stop registering new users and its app has been pulled from smartphone app stores.

  

The company’s US shares have slid in reaction to the news, despite it having only debuted on the New York Stock Exchange a fortnight ago. US shareholders have already launched legal action. The basis of the claim is that Didi should have disclosed that it was engaged in ongoing discussions with Chinese regulators.

The Nio share price went down in tandem with the Didi share price, falling around 9% between 7 and 9 July. While it may have been a coincidence, other Chinese companies followed suit. XPeng’s [XPEV] share price dropped around 9% during the period while the Li Auto [LI] share fell 5%.

 

Data-collection dangers

The crackdown on Didi’s data practices could see attention turn to how EVs collect data, such as through their dashboards and cameras. This could be a headwind for EV stocks.

The impact the Didi news had on the Nio share price has also taken some gloss off of the so-called Chinese Tesla’s inaugural Power Day, held in Shanghai on 9 July.

The event was used to announce plans to have up to 4,000 battery-swap stations by 2025, where drivers can swap out drained batteries for fresh ones rather than waiting for their vehicle to be recharged. This will include around 1,000 stations outside of China.

Demand for Nio’s vehicles continues to grow. It shifted 8,083 units in June, taking sales for the second quarter to 21,896. The company’s monthly sales have outpaced those of XPeng and Li Auto, according to CNBC. The total number of units sold in 2021 so far is 41,900, almost equalling the 43,728 vehicles sold over the whole of last year.

  

Strong delivery numbers are the reason Citigroup analyst Jeff Chung believes the Nio share price has further to run up. For the full year, he’s expecting Nio to have delivered 93,000 vehicles, which implies sales of just under 50,000 in the second half.

In a note to clients seen by Barron’s, Chung raised his 12-month target for the Nio share price from $58.30 to $72, an upside of 55.4% from its 12 July closing price.

 

What’s the outlook for Nio’s share price?

Although Wall Street is generally bullish on Nio’s stock, ongoing events and the current investment climate surrounding US-listed Chinese companies could reduce the Nio share price in the near term.

On an episode of CNBC’s Mad Money Lightning Round last week, Jim Cramer advised investors to sell at least half of their position in Nio. Cramer cautioned that he is “very worried about China,” adding “we’re done with Chinese IPOs”.

In a note to clients issued following the Didi news, Cowen analyst Jaret Seiberg wrote that the threat of Chinese companies being delisted in the US looms larger than ever.

“China’s responses to the Didi IPO is reinforcing our view that the Chinese government will not give the US market regulators the power to inspect the audits of Chinese companies listed on the US exchanges,” wrote Seiberg, as reported by Bloomberg.

“China’s responses to the Didi IPO is reinforcing our view that the Chinese government will not give the US market regulators the power to inspect the audits of Chinese companies listed on the US exchanges” - Cowen analyst Jaret Seiberg

 

Hans Albrecht, portfolio manager at Horizons ETFs Management, told the publication: “These will be choppy waters for the foreseeable future… Perhaps these names trade at a decent discount to industry, but are the discounts acceptable enough yet? I’m not so sure.”

The iShares MSCI China ETF [MCHI], which has Nio in its top 10 holdings — at a 1.95% weighting —  shed a couple of percentage points between 7 and 9 July, though it recovered slightly towards the end of the week.

As of 12 July, Nio was the top holding in the KraneShares MSCI China Clean Tech ETF [KGRN]. Nio currently has a 9.70% weighting and the fund has a year-to-date daily total return of 8.9% at the 12 July close. It has returned 75% in the last 52 weeks.