The electric vehicle boom that has carried markets throughout the year appears to be on the decline, with stocks such as Charging point (NYSE:CHPT) and Panasonic (OTCMKTS:PCRFY) both starting the week in the red. Chinese multinational electric vehicle producer joins the mix Nio (NYSE:NIO), whose week does not start well. There are several factors that cause the stock of NIO to decrease.
What happened with NIO Stock?
Trading has just started for the week, but as of this writing, Nio stock is currently down 5% for the day. Last week, this stock fell 1.2% for the week and fell sharply this morning.
As it stands, there are two main reasons for the decline of Nio stock. The first is from an industry competitor who has fallen victim to the supply chain shortage. Li Auto (NASDAQ:LI), another China-based electric vehicle producer, also saw its inventory drop today after issuing a warning that scheduled deliveries for this year may not be met due to failure to obtain enough chips electronic. Li’s declines have been worse than Nio’s so far, dropping 6% as of this writing.
The second reason is related to the recent problems of Evergrande (OTCMKTS:EGRNF), China’s second-largest real estate development company. The sprawling conglomerate is also the most indebted developer in the country, and the company recently hinted at struggling to repay debts. The news sent an instant shock wave through China’s financial system as the Hang Seng, one of China’s major stock indexes, fell more than 3%.
Why is this important
For Chinese companies in most industries, this presents grim prospects for what the immediate future might bring. For companies engaged in importing and exporting luxury items, this could be particularly troubling.
The supply chain crisis is by no means unique to the electric vehicle industry, but while it has significant effects for Li Auto, it stands to reason that these effects will also extend to Nio. While Li predicted that only 1,000 vehicles would be missing for the quarter, that number is enough to generate the kind of uncertainty that sends companies like Nio stock into the red, at least temporarily.
The Evergrande crisis has already proven that it has the power to disrupt markets far beyond China’s, as it has driven stocks down in several sectors. While no business is immune if market disruptions in China continue, there is no immediate reason to believe that Nio will be among the hardest hit. Recent reports indicate that the company could expand into Europe through partnerships, and this recent market disruption could provide a great opportunity for just that.
What’s next for Nio Stock?
Investors shouldn’t be panicked by the recent slowdown in Nio. Far from it, in fact. Last week, InvestorPlace analyst Louis Navellier cited the decline in Nio stock as a âgreat buying opportunity,â noting the power and durability of the electric vehicle boom.
This prediction is correct. The Nio share has a lot of upside potential, especially as it seeks to expand in underdeveloped markets. There is no reason to look at it through anything other than a bullish lens.
At the date of publication, Samuel O’Brient had (directly or indirectly) no position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to the InvestorPlace.com Publication guidelines.