Is the plunging Nio share price an opportunity?

Delisting fears are causing some investors in Chinese companies to panic.

| More on:
A seasaw-style scale in balance with two sandbags either end one labelled Risk and one labelled Reward

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

American depositary shares of Chinese electric vehicle (EV) maker Nio (NYSE: NIO) have fallen sharply so far in 2022. The stock is down 55% year-to-date, and its decline accelerated in recent weeks. This comes as the company has worked to expand its sales footprint into Europe and to increase its production capacity. 

But Nio has had four consecutive months of decreasing vehicle deliveries, due in part to the supply chain issues that have been affecting most automotive companies globally. Most recently, however, a new operational challenge has been added to its list of them. 

Nio is getting hit hard again Monday as U.S.-listed Chinese companies are looking more at risk of being delisted. In December 2020, the Holding Foreign Companies Accountable Act (HFCAA) became law, allowing the Securities and Exchange Commission to delist foreign companies that fail to meet U.S. accounting and audit standards for three straight years. 

Last week, five Chinese companies were specifically named as being in danger of meeting that criterion, meaning they could be delisted in 2024 if they fail to comply. Neither Nio nor any other EV maker was on that list. But that hasn't stopped investors from selling shares based on the perceived risk. Nio also completed a successful listing on the Hong Kong Stock Exchange last week. Investors may believe that move was in preparation for a potential delisting of its American depositary shares. 

The geopolitical climate isn't helping with investor confidence either. There are added uncertainties regarding the prices and availability of many commodities as Russia's invasion of Ukraine continues. Investors may also be weighing how Europe, the U.S., and others will view China's position during and after that conflict. 

Investors need to balance short-term news and uncertainties with long-term plans and potential. There are always risks when investing in equities. While what appears to be panic selling may provide an opportunity for investors to buy Nio shares at lower valuations, they should also be sure to weigh the potential risk of delisting. That means allocating funds for any position appropriately, knowing the investment could be lost in a worst-case scenario. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Howard Smith owns NIO Inc. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended NIO Inc. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on International Stock News

A woman is excited as she reads the latest rumour on her phone.
Broker Notes

Goldman Sachs says this US stock is replacing Tesla in the Magnificent Seven

And no, it's not a tech company. It's in the healthcare sector.

Read more »

A man looking at his laptop and thinking.
Share Gainers

Should I buy Nvidia stock as an Australian investor?

Many Aussies are thinking of jumping on the bandwagon, but they need to think about these issues first.

Read more »

Digital rocket on a laptop.
Broker Notes

Is the Nvidia share price on course to reach US$1,400?

You betcha, says one analyst.

Read more »

A woman holds a soldering tool as she sits in front of a computer screen while working on the manufacturing of technology equipment in a laboratory environment.
International Stock News

Could Nvidia become the most valuable stock on earth?

Can anything stop the Nvidia stock price?

Read more »

A group of young ASX investors sitting around a laptop with an older lady standing behind them explaining how investing works.
International Stock News

What can ASX investors learn from Warren Buffett's latest buys and sells?

We've just found out what Buffett's been buying and selling recently.

Read more »

electric vehicle such as Tesla being charged at charging station
International Stock News

Why Tesla stock tanked in January

Will the electric vehicle leader see earnings decline once again in 2024?

Read more »

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer
International Stock News

Will Nvidia stock be worth more than Microsoft by 2030?

The graphics giant has been growing at a much faster pace than Microsoft, but can it sustain that momentum?

Read more »

Man with hands in the middle of two items with money bags on them.
International Stock News

Stock-split watch: Is Tesla next?

Stock splits are fun. But how much substance there is in Tesla splitting its stock is debatable.

Read more »