Why I’m Not Concerned About NIO Being Delisted
- NIO’s resilience after almost everything has went against it, is a confirmation of its potential and durability.
- Be careful. The possible delisting of NIO is nothing more than noise at this time.
- Investors should continue to focus on NIO’s place in the EV sector, not things that may never happen.
- The key is to remember the underlying fundamentals of NIO and the long-term growth trajectory of the sector.
- The one question shareholders must ask in order to determine whether or not to sell, maintain or add to a position in NIO.
When taking into consideration NIO (NIO) has had just about everything that can go against it that could, over the last year or so, it’s surprising that the share price of the company has done as well as it has. I attribute that to the EV trend that has many years of growth ahead of it, and the company positioning itself for strong growth once supply chain issues are resolved.
The share price of the company also took a big hit after it was finding a bottom, as a result of the news there was a possible threat it could face a U.S. delisting.
In this article I want to why I’m still not too concerned about a potential U.S. delisting, and why investors and shareholders should maintain their focus on the upcoming positive catalysts that will eventually dominate the news for the company, as supply chain issues are mitigated and the company ramps up production on its existing and new models.
The potential delisting
Earlier in the year, I dealt with a plethora of headwinds that had been hitting NIO hard, including whether or not the U.S. was going to take a hardline stand with the Holding Foreign Companies Accountable Act (HFCAA).
With the recent announcement the company was on the list of companies that could be delisted because it was “not meeting audit and reporting requirements,” shareholders, way too prematurely, in my opinion, panicked and sold off their shares, causing the share price of the company to plunge 16.7 percent on Thursday, May 5. It closed down another 3 percent on Friday, ending the session at $14.92.
A lot of investors are going to regret selling off shares because there are already positive responses and solutions being worked on that should mitigate the issue.
For example, Reuters reported that U.S. regulatory officials are already in China for the purpose of attempting to settle the differences between the two countries concerning compliance of Chinese companies with U.S. auditing requirements. The report asserted the participants were in late-stage talks based upon concessions China made recently.
If that proves to be accurate, it appears the U.S. revealed the list of Chinese companies in order to put some public pressure on China to bring talks to a conclusion.
A step NIO said it was looking at doing would be to initiate a secondary listing on the Singapore stock exchange, which according to the company, would be “fully fungible with the ADSs listed on the NYSE [New York Stock Exchange].”
While that would provide relief under a worst-case scenario outcome, I am doubtful NIO will ever be delisted from the U.S.
Last, even if the worst happens, there is still about two years minimum before the company would be delisted, and it could go on much longer than that.
I believe there is going to be an extraordinary rebound in the share price of NIO once it ramps up its production and starts to introduce its new models at larger scale. The timing of that will be determined by the supply chain returning to full operations.
While I understand the fear instigated by the news of possible delisting, I don’t consider it nothing more than noise at this time that is distracting investors from the many strengths NIO has, and the growth potential of the EV sector itself.
Ask yourself one question
For NIO shareholders that are getting nervous, there is one thing to do to help make a decision on whether to sell, hold, or add to your position in the company. Ask yourself this question: “Why did you invest in the company in the first place, and has that reason changed?”
If your thesis remains in place, then the decision has to be made whether or not the drop in share price is something that can be lived with. I admit, I was tempted to sell on Friday, but followed my own advise and asked the question above. Not only is my thesis still the same, but with the increase in its production capacity, along with the exciting new models it’s releasing in 2022, I see as improved.
The major reason for the decline in its share price, outside the one-off delisting concerns, is the delay in delivering its models. In my view that’s just a patience issue, not something that will have a material impact on the company over the long haul.
Once the supply chain returns to where it was before the pandemic, almost all the news concerning NIO is going to be positive. And once deliveries increase and surpass prior numbers, the share price of NIO, in my opinion, is going to take off.
Nothing has changed in regard to demand for NIO’s products. By increasing the number of models it offers potential customers, it can compete in different demographics and different price points, boosting the size of its customer base, along with its battery exchange program.
With a significant period of time before any of this has to be resolved (2024 by the earliest), the news cycle will eventually change for NIO as supply gets more in alignment with demand. That should radically change market sentiment, resulting in a flood of investors bidding on its shares.
Having said that, it doesn’t mean the company is over its big correction. It could definitely get worse before it gets better, although I believe, for the most part, we’re nearing a bottom unless some unforeseen event occurs.
Another positive catalyst that would drive the share price of NIO up would be the announcement Chinese and U.S. regulators have found a solution to the auditing issue. That would be huge for NIO, because even when there was no hint of delisting, investors were making investment decision in the EV maker based upon assumptions. If that can be laid to rest, it would finally put to rest fears concerning the delisting.
On the other hand, if reports surface that there are major issues separating the parties from making an agreement, the share price of NIO is likely to languish until an increase in deliveries become the key catalyst investors are looking for.
The bottom line is, at its current share price range there’s a lot more to like about NIO than not to like; I believe there’s a lot more upside than downside going forward. And if you’re tempted to short the shares, I would be very careful after the plunge in its share price over a prolonged period of time. Even if the share price isn’t ready for a sustainable upward move, there is an increasing likelihood of a short squeeze, which could crush those betting against the company.
For me, I’m going to continue to hold my shares, and under certain conditions, possibly add to my position in order to lower my cost basis while building my position. I’m not saying readers should do the same, but we all must take into consideration the things mentioned in this article before making a long-term decision.
Finally, as for the delisting issue, I still maintain that it’s far more hyped than is justified, and would be very surprised to see that be how it works out in a couple of years. I think it’s far more likely to be resolved in the not-too-distant future, rather than linger on for a couple of years.