NIO: Dark Cloud Cover with Close Below the 10-Day EMA on Friday May Add A Short Term Bearish Signal

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NIO: Observations on the May Delivery Figures

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Consumer Discretionary / Industrials

Henry Kwon

Equity Bottom-Up

NIO dipped slightly below the 78.6% Fibonacci Retracement level of $30.98 at $30.71 on an intra-day basis on May 13 before clawing its way back up to close at $34.35 today, slightly below its 10-day EMA of $34.50 on light volumes. The question now becomes whether we have seen short term bottom for the shares, or if it has further downside risk. As of close today, the stock's 50 DMA looks like it may be on a downward path to cross the 200 DMA over the next few trading sessions, and this is a key short term indicator that I think investors should keep in mind. While the big trend continues to point downwards, however, the stock also looks as if it might be currently searching for bottom based on patterns from the past few trading sessions.The following bullet points outline my thoughts on the operating environment fundamentals for the stock. On the question of re-entry point, I am inclined to wait and see whether the shares can consolidate and close above the 10-day EMA as the first hurdle. The next point would be to see if it can avoid what looks like an impending death cross over the next few trading sessions.<ul>
<li>
New Model Intro Benefits to Extend to 3Q: The ES8 refresh in April, 2020 and the EC6 launch in September, 2020, have led to a very nice sales growth for NIO since the beginning of the year. I believe it likely that delivery momentum should continue to show strength through 3Q21.</li>
<li>
Passenger Vehicle Demand Trending at 6.5% YoY in 2021:Average PV SAAR (Seasonally Adjusted Annualized Rate) through April is suggesting that China PV demand is trending at 6.5% YoY growth in 2021. This will likely provide a fundamental tailwind for auto demand in general especially with government subsidies remaining in place for the rest of the year.</li>
<li>
Much of China's EV demand remains rooted in the A-segment: This has more to do with per capita GDP and discretionary income than anything else. Much of China's BEV demand continues to come largely from A-segment products such as the Wuling Mini and the Baojun Eseries vehicles at lower price points for the mass segment (see <a href="https://www.smartkarma.com/insights/tesla-tsla-a-few-thoughts-on-the-china-plant-announcement" target="_blank" data-smartkarma-citation="insights:22077" rel="noopener">Tesla (TSLA): A Few Thoughts on the China Plant Announcement</a> published back in 2018 for details on my thinking on the evolutionary nature of segment shift). This will likely cap the growth rates of premium BEV producers from dominating the entire EV market in China over a medium term horizon.</li>
</ul>The market's concern over inflation and a potential for the yield curve to steepen strongly remains a key valuation concern for growth stocks listed on NASDAQ in my view. NIO is an emerging market stock listed on NASDAQ which can potentially lead to greater volatility than market volatility.

NIO dipped slightly below the 78.6% Fibonacci Retracement level of $30.98 at $30.71 on an intra-day basis on May 13 before clawing its way back up to close at $34.35 today, slightly below its 10-day EMA of $34.50 on light volumes. The question now becomes whether we have seen short term bottom for the shares, or if it has further downside risk. As of close today, the stock's 50 DMA looks like it may be on a downward path to cross the 200 DMA over the next few trading sessions, and this is a key short term indicator that I think investors should keep in mind. While the big trend continues to point downwards, however, the stock also looks as if it might be currently searching for bottom based on patterns from the past few trading sessions.The following bullet points outline my thoughts on the operating environment fundamentals for the stock. On the question of re-entry point, I am inclined to wait and see whether the shares can consolidate and close above the 10-day EMA as the first hurdle. The next point would be to see if it can avoid what looks like an impending death cross over the next few trading sessions.

New Model Intro Benefits to Extend to 3Q: The ES8 refresh in April, 2020 and the EC6 launch in September, 2020, have led to a very nice sales growth for NIO since the beginning of the year. I believe it likely that delivery momentum should continue to show strength through 3Q21.

Passenger Vehicle Demand Trending at 6.5% YoY in 2021:Average PV SAAR (Seasonally Adjusted Annualized Rate) through April is suggesting that China PV demand is trending at 6.5% YoY growth in 2021. This will likely provide a fundamental tailwind for auto demand in general especially with government subsidies remaining in place for the rest of the year.

Much of China's EV demand remains rooted in the A-segment: This has more to do with per capita GDP and discretionary income than anything else. Much of China's BEV demand continues to come largely from A-segment products such as the Wuling Mini and the Baojun Eseries vehicles at lower price points for the mass segment (see Tesla (TSLA): A Few Thoughts on the China Plant Announcement published back in 2018 for details on my thinking on the evolutionary nature of segment shift). This will likely cap the growth rates of premium BEV producers from dominating the entire EV market in China over a medium term horizon.
The market's concern over inflation and a potential for the yield curve to steepen strongly remains a key valuation concern for growth stocks listed on NASDAQ in my view. NIO is an emerging market stock listed on NASDAQ which can potentially lead to greater volatility than market volatility.

NIO

NIO: Is It Re-Entry Point Yet?