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Why Nio Stock crashed this morning

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What happened

Shares of Chinese electric car maker Nio (NIO -1.05% ) crashed 4% early in the session this morning before starting to rebound, first up, then down.

But what motivated Nio’s near-death experience in the first place?

Image source: Getty Images.

So what

A confluence of negative macroeconomic news from China could weigh on Nio shares. First, of course, is the fear that the United States Securities and Exchange Commission (SEC) will start delisting Chinese stocks because China has not allowed its companies to submit. to an audit inspection by the Public Company Accounting Oversight Board of the United States. As a company listed on the New York Stock Exchange, this is a risk that Nio bears along with all the other Chinese companies that are currently trading in the United States.

In addition to this concern, however, last week the Chinese real estate giant Evergrande Group in China finally and officially defaulted when it missed a final deadline to pay interest owed on approximately $ 1.2 billion in international loans.

What does a Chinese real estate developer’s debt woes have to do with stock Nio – an electric car maker who, at the last report, was doing very well, with twice as much cash on hand as the debt on its balance sheet (according to data from Yahoo! Finance) and its sales doubling year on year?

As the BBC explained at the end of last week, Evergrande owes many banks in China as well as outside – $ 300 billion in total debt. And “if Evergrande defaults, banks and other lenders could be forced to lend less” to companies other than Evergrande, which “could lead to what’s called a credit crunch, when companies struggle to borrow money at affordable rates “.

Now what

Again, you might not think this would worry Nio, who has plenty of cash to fund his operations and presumably doesn’t need a loan. But such a crisis could slow the Chinese economy, weigh on consumer confidence, lower wage growth and generally mean that there is less money available in China for spending on electric cars.

In short, a financial meltdown in Evergrande could mean big problems for China as a whole – and for the Nio stock in particular.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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