Nio stock price has retreated this week and is nearing its all-time low even as rumors of a potential transaction remain. It has dropped in the last four consecutive weeks, and is at its lowest level since May 20th. It is one of the worst-performing EV stocks in China. So, is it safe to buy Nio shares as the trade war escalates and as it forms a risky pattern?
Will the trade war impact Nio and Chinese EVs?
Nio and other Chinese EV companies have retreated sharply this month as investors remain in the sidelines during the ongoing trade war.
Companies like Xpeng, Li Auto, and Polestar have all dived, mirroring the performance of other Chinese equities.
The main reason for the sell-off is that Donald Trump has restarted his trade war, in what has now become a game of chicken.
Trump started his trade war as soon as he moved to the White House. He initially announced a 10% tariff on all Chinese goods, and a 25% levy on imported steel and aluminum.
Trump then added another 10% levy a month later. And he ratcheted it up to 34% last week, bringing the new levies at 54%. In a statement on Tuesday, his administration noted that he would add push these levies to 104%.
Chinese EV companies like Nio and Xpeng will largely be unaffected by these tariffs because they don’t do any business in the United States. These companies have also become more self-reliant, meaning that they don’t use many parts from the US.
The risk, however, is that they may be affected by weaker Chinese demand if the economy moves into a severe slowdown. On the positive side, Beijing has hinted that it will provide more cash to stimulate key economies.
Potential Nio Power sale
The other potential catalyst for the Nio stock price will be the acquisition of Nio Power by CATL, the giant battery company. According to Reuters, CATL is considering spending about $342 million to acquire the division, which runs about 3,0000 battery swapping stations in China. This is notable since Nio Power was valued at over 10 billion yuan last year.
Nio Power is an important part of its business model. Unlike other Chinese EV companies, it focuses on battery swapping technology, which helps customers deal with range anxiety. In this, customers only go to its stations and swap batteries for less than five minutes.
This model, however, may become overtaken by other technologies, including the one by BYD that lets customers charge vehicles within five minutes.
Nio’s business has had some successes and challenges in the past few months. Its most recent results showed that its total revenues stood at $2.6 billion in the fourth quarter, up by 15.2% from the same period a year earlier. However, Nio continues to lose money, with its quarterly loss soaring to $974 million.
Nio stock price analysis: to rebound, but a crash to $1.12 likely
The weekly chart shows that the Nio share price has been in a freefall in the past few years. It crashed to a low of $3.10, its lowest level since May 2020. It recently dropped below the key support at $3.67, the lower side of the descending triangle pattern shown in purple. It also remains below the 50-week and 100-week moving averages.
Therefore, the stock will likely be under pressure as the trade war escalates and then bounce back later this year. A rebound may see it rise to the psychological point at $4.0, up by 27% from the current level. The worst-case scenario for Nio stock is where it crashes to $1.12. This target is estimated by measuring the widest part of the descending triangle and then the same distance from its lower side.
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