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In a year when a company that has anything to do with the electric vehicle (EV) sector is in a bubble, that may not seem impressive. But the Chinese EV manufacturer was on the verge of bankruptcy earlier this year.
The company is addressing the issue of an EV battery in a unique and potentially profitable way through its battery-as-a-service (BaaS) program. And prior to the Nio stock’s recent dip, the stock was surging on news that the company had delivered more vehicles in the third quarter than expected.
The Chinese Government May Have Some Questions
The government has not mentioned Nio specifically. And it was the Chinese government that played a primary role in ensuring the company’s solvency. So it may not be looking to punish its own.
But any mention of the Chinese government getting involved with Chinese companies is a stark reminder that the United States and China have two distinct styles of government. And the Chinese government, if it so chooses, could play a much larger role in Nio’s affairs than would be the case for a U.S. company.
Will Nio Stock Get Delisted?
That’s the burning question that caused Nio stock to drop approximately 20% in a week. According to a Barron’s article, Nio has said they are already in compliance with the requirements laid out by the new law passed in the U.S. House of Representatives.
Delisting is a consequence of the bill, although not the objective. The objective is to ensure that Chinese companies provide the U.S. Public Company Accounting Oversight Board (PCAOB) with audit oversight.
Doing so, say proponents of the bill, will allow U.S. investors to have the same information that U.S. investors have when deciding to invest in U.S. companies or companies in over 50 foreign jurisdictions.
Although this story is not insignificant, the companies have three years to comply with the requirements laid out in the House bill. And with an administration coming on to the scene that will be far less hostile to China, it is likely that the Bill may never get passed in its current form.
Is The Bubble Going to Burst on Nio?
My simple answer is who knows? I’ve felt the bubble could have burst on Tesla(NASDAQ:TSLA) for well over a year. The fact is that bullish sentiment can last much longer than anyone expects.
There is some belief that Nio may turn profitable earlier than forecast. Bank of America (NYSE:BAC) in particular now forecasts Nio could be profitable some time in 2023, a year earlier than expected. But projecting profit three years out is an imperfect science.
But price is what you pay. Value is what you get. I can’t tell you Nio stock has further to fall. Nor can I tell you when the air will come out of the EV bubble. But the first statement looks to be true. And the second statement seems likely to occur sooner rather than later.