Why A Russian Invasion is Bad for Nio
Don’t get me wrong, any scenario of war in the world is a terrible thing for citizens of countries that are involved. Any sort of financial discussion should take a back seat to the potential loss of human lives.
With tensions rising between Russia and Ukraine, we have seen an already weak global market become even more volatile. I talked last week about what a Russian invasion would mean for the global economy, and now I am highlighting how it could put even more pressure on Chinese companies like Nio (NYSE:NIO)
Nio has already had a difficult year. Shares of the electric vehicle maker are down by 35% so far in 2022, and 56% over the past 52-weeks. What was once a popular growth name amongst investors has fallen from grace. It didn’t help that Chinese ADRs have been slashed in half as Beijing continues to crackdown on companies that are trading on foreign stock markets. But there’s another reason why Nio could struggle this year if Russia attacks.
China Has Aligned Itself with Putin
Earlier this year, Chinese President Xi Jinping aligned himself with President Putin as the two world superpowers seemingly united. While Xi has yet to formally support the attack, he has put his support behind Putin in warning NATO to rule out its expansion in Eastern Europe. It’s a geopolitical nightmare for companies like Nio.
You see, Nio is partially owned by the Chinese government and its production partner, JAC, is a state-owned entity. More than its competitors like XPeng (NYSE:XPEV), Li Auto (NASDAQ:LI), and BYD, Nio gets labeled a government-run entity. So why is this an issue for Nio shareholders? It’s been this way since Nio was established back in 2014.
Nio is in the midst of a global expansion plan that is specifically targeting NATO members like Germany, the Netherlands, and of course, the US. Nio is already in the Norwegian market, which is, you guessed it, a member of NATO. With economic sanctions likely to be the first shoe that falls from the US and the European Union, we could potentially see a difficult path for Nio to expand into these other markets.
Of course, much of this depends on how China reacts to Russia’s invasion if it even happens. A Russian attack supported by China will likely lead to additional sanctions against China as well. This is definitely a threat to Nio’s expansion, as well as the other Chinese EV makers as well.
Nio Stock Outlook 2022
On the business side of things, Nio has a lot going for it. It recently reported its new ES7 SUV model which will debut at some point in April. On top of that, Nio is releasing the much-anticipated ET5 and ET7 sedans later this year, and the company has even been rumored to be getting into the smartphone industry. Nio is firing at all cylinders, but a potential roadblock to its global expansion is certainly a bearish catalyst for the stock. Perhaps we will learn more at NIO's quarterly earnings call at the beginning of March.
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