Nio Recovers From Sell-Off: What's In Store For The EV Stock?

Nio Inc – ADR NIO shares made gains Wednesday following a sharp pullback in the last two sessions.

The weakness was not specific to the company, with all three U.S.-listed Chinese electric vehicle manufacturers makers — Nio, Xpeng Inc – ADR XPEV and Li Auto Inc. LI — retreating in unison.

Chinese EV Stocks On Volatile Ride: The trio saw some weakness intraday Friday on the back of reports of a Chinese regulatory clampdown on domestic EV makers.

Nio and Xpeng made good the losses and ended with gains.

The selling resumed Monday as traders took profits following a rally in all three stocks. Nio has been on a tear since the middle of the year, as the company began turning the corner after a COVID-19-induced downturn.

For the year-to-date period, Nio is up 1,020%. Xpeng, which debuted on the Nasdaq on Aug. 27, has gained about 150% and Li Auto has advanced about 110% since its July 30 listing.

The selling did not abate even in the wake of strong November EV delivery numbers.

Nio's deliveries more than doubled in November, marking the automaker's fourth straight month of record numbers.

Nio plunged about 33% from its Nov. 24 highs of $57.20 to an intraday low of $38.43 hit Wednesday.

The shares have since recovered nicely.  Xpeng has seen its shares slide from a record high of $74.40 reached Nov. 24 to $46.02 on Wednesday, a pullback of about 38%.

From a record high of $47.70 hit Nov. 24, Li Auto shares plunged to a low of $30.95 Wednesday, translating to a peak-to-trough change of about 35%.

Related Link: Nio Analyst Sees Meaningful Tailwinds For EV Brand's Sales Volume

Is The Pullback Cause For Concern? The strong rally in the stocks has polarized Wall Street, with some seeing fundamentals and prospects supporting the heady valuations. Others say irrational exuberance has pushed the stocks to unsustainable levels.

Valuations have soared, warranting a healthy pullback, Deutsche Bank analyst Edison Yu said in a tweet.

The analyst also blamed the weakness on funds flowing out of these stocks and into Tesla Inc TSLA ahead of its S&P inclusion — as well as wave of equity offerings from EV-related SPACs.

The follow-on offering announced by Li Auto may also have served as a negative catalyst, the analyst said. 

Chinese new energy vehicle penetration will increase to 20% in 2025, 53% in 2035, and 80% in 2050, according to Goldman Sachs analyst Fei Fang.

Unit demand will likely quadruple in the next four years from 1 million units to 4.3 million units, he said.

Nio shares were up 5.45% at $47.98 at the close Wednesday, while Xpeng was 7.38% higher at $56. Li Auto was down 0.32% at $34.75. 

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Photo courtesy of Nio.