Take a Deep Breath: The Current Correction in NIO Shares Is Largely Unwarranted because the EV Large Is Fairly Insulated From the Ongoing Chinese language Tech Crackdown

Written by Jeff Lampkin

NIO (NYSE:NIO), one of many largest producers of electrical autos on the planet, has spent most of July in an fairness market quagmire of kinds amid the souring sentiment round Chinese language corporations as a result of ongoing tech sector crackdown. Nonetheless, given NIO’s inherent strengths and its shut working relationship with the Chinese language authorities, this correction appears overextended.

As a refresher, NIO and different Chinese language tech heavyweights listed on the US inventory exchanges have been on a receiving finish of an prolonged wave of liquidation. China’s willpower to curb the growing power and internal influence of its tech companies is commonly cited as the first impulse behind this souring sentiment. The saga started a number of months again when Chinese language authorities compelled Alibaba’s Jack Ma to cancel the IPO of the fintech firm Ant Group. Mr. Ma has not been seen in public since that turbulent time. In latest weeks, the roving eyes of Chinese language censorship have settled upon the ride-sharing firm Didi. Whereas officers in China assert that Didi’s ride-hailing app was banned within the nation on account of unlawful information harvesting, analysts determine the politburo’s desire to extend control over your entire budding tech sector as a major contributing issue behind these strikes.

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This brings us to the crux of the matter. We had famous in a earlier put up that NIO enjoys a very shut relationship with Chinese language authorities. As an illustration, NIO has entered right into a strategic partnership with the Heifei municipal authorities to assemble the large NeoPark, a 16,950-Acre industrial park that goals to localize your entire EV provide chain. Furthermore, again in 2020, NIO had obtained sizable liquidity injections from a consortium of state-backed funds, collectively often known as the Heifei strategic traders.

In one other placing instance, NIO signed a strategic agreement on the twenty sixth of July with Guoxing Auto Service Heart in Beijing. The settlement paves the way in which for NIO to supply EVs to Chinese language authorities companies in addition to different quasi-official establishments. This settlement types the bedrock of our thesis: given the lengths that the Chinese language state equipment has gone to make NIO a viable competitor to Tesla (NASDAQ:TSLA), it’s unlikely to face a destiny just like that of Didi, and any fears on this regard stay unfounded.

After all, the wide-ranging NIO app, by which clients entry not solely important charging providers but additionally faucet into the NIO way of life choices, can provide rise to some information safety issues. Nonetheless, the NIO app is just not central to the corporate’s operational integrity. Consequently, we really feel that the inventory’s 20 percent-plus drop in July is kind of unwarranted.

About the author

Jeff Lampkin

Jeff Lampkin was the first writer to have joined gamepolar.com. He has since then inculcated very effective writing and reviewing culture at GamePolar which rivals have found impossible to imitate. His approach has been to work on the basics while the whole world was focusing on the superstructures.