After struggling to revive its economy, China has decided to cut rates and prepare a stimulus package — good news for Nio.
The future of the automotive industry is almost certainly electric vehicles (EVs), even if growth has been slower than once anticipated. An even more intriguing investment opportunity is found overseas with Chinese EV makers as they are heavily subsidized by the government, boast leading technology, and produce vehicles that are well-received.
In July, for the first time, sales of electric vehicles took a 51% market share of China’s overall new passenger vehicle market. That’s what makes Nio (NIO 12.80%), a premium Chinese EV maker, an intriguing investment opportunity — and investors just received a little good news.
What’s happening
China’s economy never fully regained steam following the COVID-19 pandemic, and it has been slowed further by a giant property slump and subdued consumer spending. Now, China’s central bank has decided to lower interest rates and the government added a stimulus package designed to boost the stock market.
More specifically, the People’s Bank of China is lowering the benchmark seven-day interest rate, reducing the amount the banks hold in reserves, and offered roughly $70 billion to investors to buy stocks as well as offering more funds for companies to buy back shares.
“This isn’t the central bank going all-in on stimulus, there’s plenty more left in the tank, but it’s a clear sign that it’s not going to sit back and watch growth disappoint,” said Matt Britzman, an analyst at Hargreaves Lansdown, according to Barron’s.
What it means
This is just a little good news for Nio investors, which stand to benefit as lower interest rates will filter down to auto loans and make purchasing a premium Nio vehicle more affordable. This will be a small short-term boost for Nio, but long-term the company’s prospects will rely on its two new brands.
Nio’s second brand, designed to be more affordable for consumers, is about to launch its first lower-priced L60 SUV, which starts as low as $21,210 in China with deliveries set to begin in just a few short days.
But Nio isn’t stopping with just its second brand, Onvo, and has a third brand in store for consumers that’s expected to be unveiled later this year. The company has internally code named the third brand “Firefly” and its first model will be something between a small EV SUV and a compact EV SUV.
Bottom line
Ultimately, China’s rate cut and stimulus package will provide a short-term boost as its premium vehicles become more affordable and the stock market is boosted by the stimulus. But the company’s investment thesis still revolves around gaining market share as it introduces more affordable brands. Stay tuned — Nio could be about to kick sales into a much higher gear, and then the company as an investment only gets more intriguing.
Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
