The outlook for the electric vehicle sector: what are the reasons for NIO's poor performance?

The outlook for the electric vehicle sector: what are the reasons for NIO's poor performance?

The electric vehicle market is rapidly developing and growing, with more than 25 countries worldwide striving to phase out internal combustion engine vehicles over the next 10-30 years.

NIO is a key Chinese electric vehicle maker that is aggressively working to capitalize on increased reliance on electric vehicles.

It is also the main competitor and the first for the giant company Tesla.

The performance of the shares of electrical companies since the beginning of the year

2021 follows the path of 2020 in the performance of electric vehicle stocks as corporate stocks made a stellar rally in 2020.

Tesla shares have gained more than 700% and NEO shares are up more than 1,000% over the past year.

Supported by the sharp recovery of stock markets in the wake of the collapse of global markets due to the consequences of the spread of the COVID-19 crisis in early 2020.

Car manufacturers have been weakened recently, due to factory closures due to the consequences of the Coronavirus and problems in the supply chains of chips.

NIO's stock fell to its lowest level of the year in mid-May, falling to $30.71.

Chinese electric car shares also weakened further as international investor sentiment for China-based stocks took a hit in the wake of Beijing's regulatory attack.

The share price of NIO is witnessing a decline compared to the performance of its competitors, as the shares of the Chinese company NIO have declined since the beginning of 2021 by more than 22%.

While the shares of the competing company Tesla have increased since the beginning of the year so far by about 3.6%.

NIO's Chinese competitors such as Li Auto are also up 0.7% while Xpeng is down about 5% since the start of 2021 to date.

In its annual report for 2020, NIO stated that its sales of electric vehicles during the year 2020 more than doubled, amounting to about $2.33 billion.

The company expects about 25,000 cars to be delivered during the next quarter, up more than 100% compared to last year.

What led to NIO's performance decline?

The Chinese authorities carried out a large-scale regulatory campaign in 2021, which cast a shadow over many sectors.

Which included the Internet, insurance, games, education, property, and more.

This is because the authorities in Beijing are very concerned about Chinese companies being listed abroad and using private consumer data.

State authorities have said that companies with data of more than a million users will need to undergo a cybersecurity review for their offshore listing.

NIO shares took an uptrend in line with the broader stock markets in Hong Kong and China, with shares seeing a strong rally in the first quarter of this year and a weaker following afterward, as the pace of the regulatory sweep of China accelerated.

Chinese rivals Xpeng and Li Auto completed a dual listing for homecoming in Hong Kong this year, in a move that could satisfy authorities in Beijing.

While it is reported that NIO filed an application in March for a secondary listing in Hong Kong, however, reports also indicate that NIO's application has not yet been approved due to user trust rights issues, it is unclear how trust hinders the listing process.

The global shortage of semiconductor chips

In its quarterly report for the second quarter of this year, the company's CEO said that global supply chains still face many challenges and difficulties, especially with semiconductor chips, despite that, we are working hard with our partners to improve the overall production capacity of the supply chain.

In fact, the global shortage of semiconductor chips has had negative impacts on automobile production in 2021, due to the increasing cases of coronavirus infection and the emergence of many new mutations in Southeast Asian countries.

Market experts believe that the negative impact of the shortage of semiconductor chips on the electric vehicle industry will continue until mid-2022.

Some estimate that the rate of lost output due to supply chain disruptions could reach 7.1 million units globally in 2021.

Prospects for the electric vehicle sector

The electric car industry is sure to be a pioneer and in high demand by both institutional and individual investors.

Increasing concerns about global warming and climate change have encouraged the adoption of this faster-growing industry.

According to the Electric Vehicle Outlook Report issued by the International Energy Agency (IEA), it confirmed that the year 2020 saw spending rates on these vehicles by about 50% compared to 2019, with an estimated $120 billion.

The report indicated that the data on the total registration of new cars during the past year decreased by about 16% on an annual basis, due to the Coronavirus pandemic.

For this reason, the growth opportunities will be enormous for companies operating in the electric vehicle industry as several major auto markets including India and Brazil have not yet seen a higher adoption rate of electric vehicles than the markets in China and Europe.

In its report, the International Energy Agency confirmed that more than 20 countries plan to phase out the use of internal combustion engine cars over the next 10 to 30 years.

To achieve this goal, governments around the world have introduced incentives and tax credits for electric vehicles to drive this adoption.

China market

NIO is one of the largest domestic electric car manufacturers in the world's largest car market, China

The company is well-positioned to establish itself as a major player in the electric vehicle market.

NIO beat Tesla in the electric SUV market in China in April, with a market share of about 23%.

Tesla called the market in China "crucial" for the electric car industry in its Battery Day 2020 presentation.

The electric vehicle sector in China is highly competitive with international automakers as well as domestic companies including BYDGeely Automobile, and many more.

China has nearly twice as many electric car models available as the European Union, which has more than twice as many electric models as the United States.

This difference can be explained in part by the relatively low maturity of the electric vehicle market in the United States, which reflects weak regulations and incentives at the national level.

According to the International Energy Agency, moreover, China's goal of carbon neutrality has turned it into a green technology powerhouse.

One market analyst says China's green sectors are likely to absorb the wave of domestic and international government subsidies and the growing global demand for clean energy technologies such as renewables, batteries, and other electric car parts.

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