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Nio Stock: A Gift To Investors Or A Money Pit?

Investors are selling off Chinese stocks, including NIO. But could now be a good time to invest in this EV maker?

Chinese electric vehicle (EV) maker Nio  (NIO) - Get NIO Inc. American depositary shares each representing one Class A 蔚来汽车 Report has been suffering from strong market volatility that has especially affected Chinese stocks. Thanks to regulatory pressures from Beijing and Washington and a generally chaotic geopolitical scenario, NIO shares have depreciated more than 75% since their peak in January 2021.

However, there are good reasons to consider an investment in Nio. Despite recent bearishness, the company remains well positioned among the top global EV makers.

Figure 1: Nio Stock: A Gift To Investors Or A Money Pit?

Figure 1: Nio Stock: A Gift To Investors Or A Money Pit?

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Chinese Stocks Downtrend

Chinese regulatory clampdowns continue to be a concern for the markets. Not surprisingly, the iShares MSCI China ETF  (MCHI) - Get iShares MSCI China ETF Report has lost 45% of its value in the past year.

The reason for this negative trend? Beijing doesn't want Chinese companies listed on U.S. exchanges to disclose sensitive information about their companies and clients. However, if these companies don't consent to audits by U.S. regulators for three consecutive years, they run the risk of being delisted.

If Chinese companies are forced off the U.S. exchanges, that would have a negative impact on China. It could be seen as a non-investment country — which would not be in China's best interest.

The market is also concerned about the crisis in Eastern Europe. If the Chinese government aligns with Russia, it could also have a negative effect on China and its stocks.

Nio's China-Sized Opportunity

Because regulatory and geopolitical issues have been the main factors that have kept investors away from Chinese equities — rather than fundamental problems with the companies themselves — this may be a good opportunity to buy excellent Chinese companies at much lower valuation multiples than seen last year.

There are good reasons to remain optimistic about Nio. The fact that there are more bulls than bears on Wall Street reinforces this idea.

Being eligible for a dual listing, Nio recently debuted on the Hong Kong stock exchange in hopes of reducing regulatory risk and minimizing investor concerns.

The geopolitical chaos and skyrocketing oil prices have added a sense of urgency to the global push for alternative energy sources. This could give a boost to EV manufacturers, including Nio.

What Nio Investors Should Consider

Investing in Nio today is best suited for investors willing to face extreme volatility and very high risk. However, the old saying that the greater the risk, the greater the reward holds true here.

An investment in Nio is risky due to external factors beyond the company's control. The company's fundamentals seem to hold good prospects for capitalizing on the emerging EV market based on its technology and especially its Chinese market penetration. 

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)