• The Chinese government is signaling support for clean energy, transportation and the economy.
  • Nio shares added 10.9% on Monday, hitting their highest level since February.
  • The Hang Seng index rose 4.1% in Hong Kong on Tuesday.
  • NIO stock is trading above both the 50-day and 200-day SMAs.

nio (NIO) shares opened another 5.8% higher at $12.41 in early trading on Tuesday. Nio bulls appear intent on not giving back any of Monday’s 10.9% gain in the electric car stock, which pushed the company to its highest price range since February. Nio shares were already up 4.7% at $12.28 in premarket trading on Tuesday after China’s central government said it was looking for more policies to support clean energy and transport.

The Hang Seng gained 4.1% on Tuesday as many traders covered their short positions in the stock news. NASDAQ futures added 0.26% in premarket trading Tuesday.

Nio Stock News: Chinese government support precedes short covering

Monday’s big rally was triggered after China’s National Development and Reform Commission (NDRC) – a government agency that promotes economic development – said it was developing policies to boost private investment in a number of strategic industries. These industries include clean energy and transportation, both of which intersect with Nio’s electric vehicle business.

Here on Tuesday, the Chinese Politburo added to the optimism. The top authority did not set out a specific policy, but said the main priority was to support the nation’s moribund real estate sector and focus on reducing youth employment. China’s economy is recovering much more slowly than the rest of the developed world after the Covd-19 pandemic.

That led to a second day of gains in Chinese stocks on Tuesday, as short sellers rushed to close out their short positions. To do this, sellers need to buy back the stock briefly, which often increases the stock price.

From the Financial Times: “There is a herd instinct and about two-thirds of this rally looks like short covering,” said Louis Tse, managing director of Hong Kong-based brokerage Wealthy Securities.

Nio still underperforms some of its peers Li Auto (LI) and XPeng (XPEV), which have returned 82% and 57% year-to-date, respectively, compared to Nio shares’ 22% gain. Much of this underperformance is due to Nio’s lackluster second quarter, which saw shipments decline year-over-year.

Nio investors hope a new $740 million investment from the Abu Dhabi government vehicle will lead to more positive guidance during its third-quarter results in early September.

Frequently Asked Questions about EV Shares

Electric vehicles, or EVs, are cars that use rechargeable batteries and electric motors rather than internal combustion engines (ICEs) for acceleration. They’ve been around for over 100 years, but research and development into battery technology has been modest for most of the 20th century. Lithium-ion battery technology became advanced enough to mass-produce EVs in the late 1990s and 2000s, and since the Tesla Roadster was introduced in 2008, sales have grown steadily. EVs are considered a means of reducing carbon emissions because battery electric vehicles (BEVs) themselves produce zero emissions. Other vehicles called plug-in hybrid electric vehicles (PHEVs) use both electric power from the batteries and the ICE as backup.

Electric cars are growing from a small base, but grew from 9% of global new car sales in 2021 to 14% of the total in 2022. That was a 65% year-on-year growth rate, and the industry delivered 10.2 million electric cars worldwide in 2022. Projections show that number surpassing 16 million in 2023, with market shares varying widely between countries. Almost 88% of Norwegian new car sales in 2022 were electric cars. On the other hand, in the United States, where much of the modern innovation in EVs was created, less than 8% of new vehicle sales in 2022 were EVs. The world’s largest EV market, China, saw 30% of the EV market this year.

We know you mean Elon Musk, but he’s probably more like the father of the modern mass-market electric car. All the way back in 1827, Hungarian priest Anyos Jedlik invented the electric motor and the following year used it to power his kind of vehicle. French scientist Gaston Planté invented the lead-acid battery in 1859, and German engineer Andreas Flocken built the first true electric car for the public in 1888. Electric cars made up about 38% of all vehicles sold in the US around 1900. They began to lose market share rapidly after 1910, when gasoline-powered vehicles became much more affordable. They largely died out until new research programs in the 1990s led to gradual private sector investment in the 2000s.

China’s BYD is by far the largest EV manufacturer in the world. It sold 1.8 million EVs in 2022 and accounted for 20% of the global market in the second half of the year. The asterisk awarded to BYD is that the vast majority of these vehicles are hybrids. Tesla’s 12% market share is often considered more significant than BYD’s because it sells only BEVs and is the best-known EV brand in the world. The top five are completed by Volkswagen, BMW and Wuling. However, as a new sector with large investments, many startups have flooded the market. These include China’s Nio, Li Auto and Xpeng; a Swedish-Chinese manufacturer called Polestar; and Lucid and Rivian from the US.

Nio stock forecast

Nio shares have been trading higher over the past two weeks, even using the 200-day simple moving average (SMA) for support. This is indeed a good sign, and this chart optimism will be confirmed if the 50-day SMA crosses its 200-day counterpart, which could happen by the end of the summer. The SMAs are only $1 apart at the moment.

The Relative Strength Index (RSI) has traded as high as 69 during the recent euphoria – just one number lower than the 70 mark that normally indicates a stock is overbought.

With the 50-day SMA still trading below the 200-day SMA, Nio shares technically remain in a downtrend. If the shorter SMA breaks above the longer SMA, it signifies a golden cross pattern that will lead many more traders to exit the sideways line, ensuring a move towards the next two price targets at $13 and $16.

NIO Daily Chart

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