NIO Stock: Much A Do About Nothing (2024)

Investing Group Leader

Thesis Summary

NIO Inc (NYSE:NIO) fell over 15% on Thursday, following a broader market sell-off. The appetite for high-growth risk stocks has disappeared with the Fed raising rates, but NIO also has problems of its own.

For starters, the latest deliveries were short of impressive, and investors are wondering if NIO can keep up its growth in the current macroeconomic context. I discussed the recent delivery issues back on April 12th in this article.

But NIO is now the latest target of the SEC and has been added to the delisting list. NIO is doing what it can to comply with the SEC, reassure investors and also find alternative solutions.

Ultimately though, I stand by my previous assessment. While sentiment and momentum are clearly against NIO, the long-term prospects of the company are still compelling.

NIO: Falling In Line

NIO's latest delivery card was a disappointment to investors, though to be fair, this was not completely unexpected. NIO delivered 5074 vehicles in April, down from 9985 in March. That's near a 50% decrease MoM, but this is still a YoY increase of 13.5%. This slowdown was in line with my, and analysts' most recent expectations.

Chinese EV manufacturers have been hard hit in the last few months given the fact that the country is dealing with a COVID outbreak and harsh lockdowns. NIO had to shut down part of its supply facilities in Hefei. But, as I mentioned in my last piece, I think these supply issues are overblown

NIO is not the only automaker to have been affected by this. Li Auto (LI) has seen deliveries fall by 62%, and XPeng's (XPEV) deliveries fell by 42%. We have yet to see how Tesla Inc (TSLA) did in April, but I'd expect a similar outlook.

All in all, this fall in deliveries was expected, and though NIO did fall on the day, there are more pressing concerns for investors. The real catalyst for the latest drop has been the renewed fear of delisting.

Delisting, this time for real

Investors are concerned about the newly resurfaced delisting fears. This is no longer speculation. NIO has been specifically placed by the SEC on a list of companies facing possible delisting. Other EV manufacturers like Li and XPeng are also on this list. But what does this mean exactly?

Under the Holding Foreign Companies Accountable Act (HFCAA), the SEC can de-list any company that does not provide financial reports to the Public Company Accounting Oversight Board for 3 years.

From what I understand, starting on May 25th, these companies will have to provide some form of financial report to this Oversight Board. However, this is when the three year grace period would begin. Therefore, there is no real risk of NIO being delisted any time soon.

The company has addressed this issue and said it will do everything it has to comply with the SEC. On top of that, NIO has already taken steps to limit its "exposure" to the US equity markets.

Back in March, NIO already began to trade on the Hong Kong stock exchange. This is a highly traded and liquid market. This gives NIO, as a company, access to more financing and investors. As a stock, it makes it more liquid and limits the potential downfall that delisting would have.

Today, NIO has announced that it is also looking to list its shares in the Singapore exchange, and has received a conditional listing eligibility letter from the exchange, which would allow shares to be listed and quoted on it. This move, however, will do little to support NIO's share price in the case of delisting. The Singapore exchange is much less liquid than the US and Hong Kong markets, which is why I see this as a PR stunt, more than a significant move that will help the company long-term.

Delisting was never expressly on the table for NIO, but that didn't stop it from being lumped into the negative china trade. I've talked about delistings before, more recently in an Alibaba Group Holding (BABA) article.

Ultimately, I don't believe there is a real risk of NIO getting delisted. As I mentioned above, the company would still have three years to comply with the SEC. Secondly, why wouldn't they comply? NIO is a legitimate company, with a good product and ambitious expansion plans. I don't subscribe to the idea that their numbers are fudged in any way. And, if you do, then you shouldn't be investing in NIO, and the delisting fears should not be a concern.

Final Thoughts

Investors are quick to point out when companies are priced for perfection, but few are observing that, right now, NIO is priced for failure, and this creates a great buying opportunity for savvy investors. NIO is at its worst in terms of deliveries due to delisting fears, but these are both short-term problems. COVID will subside, and EVs are here to stay. Meanwhile, NIO has 3 years to comply with the SEC, and there is no reason it won't. Even if it was delisted, the stock would still trade on the Hong Kong exchange, soon in Singapore and over the counter.

NIO certainly has its risks, and owning it is not for the faint of heart. But for those willing to ride out the storm, NIO could be a potential multibagger.

I maintain my buy rating on NIO and stand by the price target of $42, which I reached after the latest earnings. The current fall in share price just gives us an even better return prospect.

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