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NIO stock is falling after separate reports about what Tesla is doing in China, Nio’s home market. Investors shouldn’t be so quick to extrapolate from one to the other.
On Wednesday, Bloomberg reported that Tesla (ticker: TSLA) is requiring less money from Chinese customers to reserve one of its vehicles. Separately, stock research boutique GLJ Research wrote Tesla discounted sales in June to help hit its second-quarter delivery goals.
Tesla shares aren’t doing much on the news. Stock in Elon Musk’s company was hovering at $1,600 in early Wednesday trading, up about 2%, before sliding back. Shares are down about 0.2% at 11 a.m. eastern time. NIO (NIO) stock, on the other hand, is being hit harder, down almost 8%.
Both reports might signal weakness in the all-important Chines electric vehicle market. China is the largest new car market in the world. It’s also the largest market for all electric vehicles. But there are alternative interpretations.
NIO and Tesla both blew away second-quarter delivery expectations. The strong data is a sign the Chinese market is rebounding from its coronavirus-induced downturn. “We continue to believe EV demand in China is starting to accelerate,” wrote Wedbush analyst Dan Ives in a July 20 research report.
Ives doesn’t follow NIO but rates Tesla stock Hold and has a $1,250 target price.
China doesn’t feel all that weak right now. Tesla may have pushed for quarter-end deliveries, but that likely isn’t a NIO issue. What’s more, Tesla usually ships most cars late in any quarter.
Lower reservation fees could also mean more competition among EV companies. That’s possible. If true, it signals a new era for the EV industry. EV makers, in one sense, don’t bump into one another too often in the marketplace—total EV penetration is low relative to the overall car market. It’s less than 2% of global sales. EV makers are usually concerned with pricing versus traditional gas-powered cars.
Tesla, however, has been reducing prices of several models around the world. Tesla costs are falling and lower prices will, hopefully for the company, stimulate more demand. Lower reservations could a reflection of the same dynamic already in place for weeks.
Barron’s isn’t a NIO bull or bear. And it makes some sense that the behemoth Tesla, with it’s near-$300 billion market value, can impact NIO, with its $15 billion market capitalization, significantly. But there is a lot of noise in the EV market today and much of the news appears to cut both ways, depending on bullish or bearish leanings.
If competition, or an EV slowdown, don’t bite NIO and Tesla, valuations might. Analysts in the U.S. and China aren’t sure about both shares. Only about one in four analysts rate both stocks the equivalent of Buy. The average Buy-rating ratio for stocks in the Dow Jones Industrial Average is about 55%. What’s more, both average analyst price targets are well below where the pair trade.
Big reactions to news is nothing new for NIO investors. Shares have been on a wild ride lately. The stock rose 0.5% Tuesday following an analyst upgrade. But shares rose almost 16% Monday, bouncing back from a brutal 14% drop following a downgrade from Goldman Sachs.
Year to date, stockholders, however, are likely pleased. NIO shares have gained almost 200%, far better than comparable returns of the S&P 500 and Dow Jones Industrial Average and most automotive peers.
Tesla shares are up about 284% year to date.
Write to Al Root at allen.root@dowjones.com