<p>The Chinese electric car manufacturer Nio (NYSE: NIO) saw its share jump on Wednesday and gained 6.07% on the day. After losing some steam, the Nio share is once again on the right track for a high-performing July, with NIO now almost 44% since the beginning of the month.
This is far from the last time I wrote about the company – almost exactly one month ago – after the Nio share price fell 6.7% in one day. What has changed in July and what caused yesterday’s big profit?
NIO’s Rough Ride 2019
Before we go into what is obviously going right for NIO this month, it is important to look at the challenges the company has faced for 2019. Although July has seen the Nio share price gain momentum, it is still dramatic down from the spring.
At the beginning of March, the Nio stock started trading at high highs, above $ 10. After yesterday’s big profit, it reached $ 3.67. Despite a rather impressive month, NIO is still down more than 64% since March.
Since then, there has been a seemingly endless amount of bad news for NIO investors.
At the end of March, a major speed halt occurred when China announced that it was halving subsidies for electric car purchases. That news immediately hit 7% of Nio’s share price. In April and then again in May, two Nine ES8 SUVs ignited spontaneously. A third fire in June – along with a Tesla (NASDAQ: TSLA) Model S fire in a Shanghai parking lot – led the Chinese government to order electric car manufacturers to carry out safety checks on their fleets. Subsequently, Nio 5000 recalled the high-performance electric SUVs ES8 sold in the past year after determining that their battery pack had a design defect that could pose a fire hazard.
In the May profit, Nio had a smaller loss than expected but reported that he sold less than half as many vehicles as in the previous quarter. The company also postponed indefinitely the release of its first sedan, ET7. By mid-June, subsidy cuts meant that the Chinese EV market had slowed to just 2% annual growth, and foreign brands such as Volkswagen and Tesla were the ones seeing real gains.
The trade war between China and the United States, which intensified in May and threatened to cause an economic downturn – which in turn would affect consumer spending in China.
With such news in the headlines, it is no wonder that investors went back and the Nio share hit all the time in June.
Signs of hope for NIO stock investors
Based on what has happened since March, or even so far (where the Nio share is down over 45%), the picture has not been rosy for Nio or its investors. But there has been positive news in July that revived optimism in the electric car industry in general, as well as NIO’s prospects for a recovery.
Firstly, although the trade war has not disappeared, it has not (yet) escalated to the extent that it had been feared. On July 2, Tesla reported record deliveries in the second quarter, and these figures helped reassure investors about the electric car industry in general, reducing fears that declining government subsidies would wreak havoc on sales. There is little doubt that the Nio share price benefited from a halo effect as a result of Tesla’s performance. While the ET7 sedan was put on the shelf, Nio released a brand new vehicle at the end of June, with the more affordable SU6 SUV reaching its first buyers on June 20.
And then big news about Chinese car sales. After a 12-month decline in July, it was announced that Chinese car sales increased by 5% compared to the year before in June.
Yesterday’s jump in the Nio share price is part of a more positive view of the company. Its outlook has gained momentum since the dark days of June. There are still many balls in the air – where the trade war is going, if Chinese vehicle sales can continue to show growth, and if the ES6 SUV sells in significant numbers – but at the moment, things look like for NIO.
At the time of writing, Brad Moon had no position in any of the above securities.