Nio Inc – Structural Subordination to Hefei Investors and Associated Risks

Nio Inc (Nio US) - Automotive Data Security, Delivery Declines and Hefei Investors

NIO Inc.  EM Stock Pickers Take Wide Berth

Consumer Discretionary / Industrials

Henry Kwon

Equity Bottom-Up

<p>NIO's 1H21 unit sales doubled (+200.4% YoY) but its shares declined by as much as 4.66% during the day to dip below the 10-day EMA before recovering to $50.40 (-0.98%) at close on Friday. Here is our initial take:</p><ul>
<li>On a 3 month moving average basis, sales growth has been decelerating, but this is to be expected given low base effect from COVID-related demand weakness in the 3 month period between February '20 and April '20.</li>
<li>Next fundamental signal should come from NIO's 2Q earnings release which will show whether operating leverage could allow the company to achieve operating profitability.</li>
<li>Fundamentally, NIO's planned Norwegian entry in September should continue to provide thematic tailwind in the market, so long as domestic sales momentum and/or market liquidity does not lose steam in the coming months.</li>
<li>
<strong>Short term Bullish scenario: </strong>NIO's shares failed to break above its 23.6% Fibonacci retracement level of $56.18 on July 1, and Friday saw a steep corrective pullback before the shares stabilized towards close. The U.S. market is closed on Monday for Fourth of July holiday observations, but when trading resumes on Tuesday, investors should monitor to see whether NIO can manage to close above the 23.6% retracement level. Clearing this hurdle could potentially fuel an acceleration to $60 in our view. </li>
<li>
<strong>Short term Bearish scenario: </strong>While Friday's strong close kept NIO in its ascending channel, it should be noted that the save happened on low volumes. Investors should watch carefully to see if NIO breaks below the 38.2% Fibonacci retracement level at $49.49. If the shares drop further to below its 10-day EMA, then a potential drop to the $46-47 zone could become possible based on our observation.</li>
</ul><p>At this point, the corrective pullback should be seen as a healthy one in our view. Investors should await to see how margins fare in NIO's 2Q earnings release to assess whether the shares' bullish run continues.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/216/794/original/Screen+Shot+2021-07-04+at+9.55.15+PM.png?1625460934" class="editor-image img-responsive" data-smartkarma-image-id="216794"></figure></section><div class="content-caption">Sources: Company Data, CEIC</div>

NIO's 1H21 unit sales doubled (+200.4% YoY) but its shares declined by as much as 4.66% during the day to dip below the 10-day EMA before recovering to $50.40 (-0.98%) at close on Friday. Here is our initial take:
On a 3 month moving average basis, sales growth has been decelerating, but this is to be expected given low base effect from COVID-related demand weakness in the 3 month period between February '20 and April '20.
Next fundamental signal should come from NIO's 2Q earnings release which will show whether operating leverage could allow the company to achieve operating profitability.
Fundamentally, NIO's planned Norwegian entry in September should continue to provide thematic tailwind in the market, so long as domestic sales momentum and/or market liquidity does not lose steam in the coming months.

Short term Bullish scenario: NIO's shares failed to break above its 23.6% Fibonacci retracement level of $56.18 on July 1, and Friday saw a steep corrective pullback before the shares stabilized towards close. The U.S. market is closed on Monday for Fourth of July holiday observations, but when trading resumes on Tuesday, investors should monitor to see whether NIO can manage to close above the 23.6% retracement level. Clearing this hurdle could potentially fuel an acceleration to $60 in our view. 

Short term Bearish scenario: While Friday's strong close kept NIO in its ascending channel, it should be noted that the save happened on low volumes. Investors should watch carefully to see if NIO breaks below the 38.2% Fibonacci retracement level at $49.49. If the shares drop further to below its 10-day EMA, then a potential drop to the $46-47 zone could become possible based on our observation.
At this point, the corrective pullback should be seen as a healthy one in our view. Investors should await to see how margins fare in NIO's 2Q earnings release to assess whether the shares' bullish run continues.Sources: Company Data, CEIC

NIO

NIO: What to Do?