The timing of the slippage in stock performance aligns quite neatly with Western institutional investor selloffs in the wake of China’s tech crackdown. The current market action can thus be construed as an “idiosyncratic” event, independent of the company’s fundamentals and valuation trajectory.
However, even though it’s “idiosyncratic”, it’s an indicator that retail investors shouldn’t expect continued availability to the stock in the long run. While NIO’s recent share buyback bears some resemblance, at first blush, to that of Baidu as well as that of Alibaba, the context is slightly different but significant.
In early 2020, the company did a structuring of sorts by establishing a subsidiary (“NIO China”), which encompassed its China-specific assets, in Hefei and selling a minority stake of the same to a number of investors and state-owned enterprises in exchange for a $1 billion investment. Over this year, the company has been repurchasing its stake from some of them in preparation for an IPO, which is expected to happen next year.
Going by the queue of companies preparing for “dual-primary” listing at the Hong Kong Stock Exchange (HKSE), it wouldn’t be out of the question to see the bulk of Chinese companies’ stocks departing U.S. shores within two years, i.e. by mid-2023 or thereabouts. DiDi already announced its plans to depart the U.S. for the HKSE on the 11th, which could very well be a signal from the Chinese Government to U.S.-listed Chinese companies.
The present focus on the affluent customer segment (which tends to be somewhat recession-proof), high operational achievements via its joint venture, leadership’s clearly-defined and ambitious plans for growth and steady focus in building out infrastructure for its offering (both current and future) are net positives for the company. In light of its rather humble presence in the EV market in absolute numbers, the fierce competition and its continuing investment in building out a mass-market brand, now’s a good point for an investor to initiate a holding in the company within the “core” portfolio and follow its progress over the next couple of years for further action.
Investors with access to the HKSE are in less-risky position as compared to investors in the U.S. stock. Such investors are advised to watch for the stock’s upcoming IPO and perform a buy-in at an opportune moment. Given that cross-border investor interest will be largely institutional, the valuation would likely be quite tight and reasonable.
For investors interested in the U.S. stock, however, they must bear in mind that given the company’s steadily-improving high technical achievements, its dependence on the government for manufacturing and its plans to launch a mass-market brand, it is entirely possible that the government will expect the company to leave the West and return to its embrace sooner rather than later, thus leaving the U.S.-listed “stock” in limbo (if not entirely valueless). Thus, retail investors holding the U.S. stock should exercise due care.
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