- Nio’s share price looks to be rebounding, having risen 15.3% since May 11.
- However, any recovery is likely to be fragile as the company continues to grapple with Covid-19 shutdowns in China and global supply chain issues.
- Plus, Nio’s future as a publicly listed company in the U.S. remains shrouded in uncertainty.
Source: Andy Feng / Shutterstock.com
After a punishing decline, it looks like the stock of Chinese electric vehicle maker Nio (NYSE:NIO) may have finally hit bottom.
Shares of the Shanghai-based automaker looked like they reached rock bottom on May 11 when they fell to a fresh 52-week low of $11.67. Since then, NIO stock has risen 15.3% to now trade at $14.63. However, any signs of a recovery are likely to be fragile amid continued market volatility. Investors should also keep in mind that even with the recent rally, NIO stock remains down 48.8% on the year and has fallen 55.8% over the past six months.
The low point for NIO stock came as the company found itself in danger of being delisted from the New York Stock Exchange, where its shares trade in the U.S. The company said it was notified in early May by the U.S. Securities and Exchange Commission (SEC) that it is in violation of the Holding Foreign Companies Accountable Act due to an issue with its 2021 annual report. Apparently, the auditor Nio used to draft and review its annual report has working papers that have not been inspected or verified by the SEC nor regulators in China.
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The SEC has the authority to suspend NIO stock from trading on the big board in New York if it feels such an action is warranted upon further investigation of the auditor. That prospect made already jittery investors even more concerned about Nio and its ability to continue trading in New York. However, within days, Nio, whose shares are already listed in Hong Kong, announced plans to pursue an additional listing of its stock in Singapore. News of the Singapore listing, which has already been executed, helped alleviate some of the concerns related to Nio and its stock has been rising ever since.
Supply Chain Problems
Like many automakers around the world, big or small, Nio has been grappling with supply chain problems for more than a year now. And the company says ongoing supply chain issues continue to be its biggest issue. The renewed Covid-19 restrictions that have occurred in China in recent months, particularly in Shanghai where Nio is headquartered, have not helped the company any.
Nio reported that it delivered 5,000 electric vehicles in April, half the 10,000 vehicles it delivered in March. The decline was blamed on the Covid-19 restrictions and continued difficulty in sourcing parts. Nio’s total passenger car sales were down 36% year-over-year in April due to the continued production snags. While Nio Chief Executive Officer William Li has said that consumer demand for electric vehicles in China remains strong, the company will need to get its production back on track to meet that demand.
Keep an Eye on NIO Stock
Nio continues to be the leading electric vehicle maker in China and is a main rival to global leader Tesla (NASDAQ:TSLA). Bank of America (NYSE:BAC) recently upgraded Nio’s stock to a “buy” rating from “neutral” and raised its 12-month price target on the stock to $26 a share, which is 77% higher than where the shares are currently trading.
Yet, despite Nio’s long-term story remaining positive, the company faces some strong headwinds in the near term. China’s zero tolerance Covid-19 policy continues to result in damaging manufacturing shutdowns throughout the country, global supply chains remain clogged, and Nio’s future on the New York Stock Exchange has yet to be resolved.
Given these lingering uncertainties, as well as the continued gyrations in the broader market, Nio’s share price is likely to remain fragile and could reverse lower again. For these reasons, investors would should keep an eye on Nio for the time being, but avoid taking a position at this time. In the current environment, NIO stock is not a buy.
Disclosure: On the date of publication, Joel Baglole 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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