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Why Nio Stock Crashed This Morning

By Rich Smith – Dec 13, 2021 at 10:53AM

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Nio's stock is bouncing around on Monday, and investors are clearly nervous.

What happened

Shares of Chinese electric car manufacturer Nio (NIO -1.54%) crashed 4% in very early trading this morning before beginning to bounce around, first higher, then lower again.

But what prompted Nio's near-death experience in the first place?

Chinese flag superimposed on a stock market chart.

Image source: Getty Images.

So what

A confluence of negative macroeconomic news headlines out of China may be weighing on Nio shares. First and foremost, of course, is the worry that the United States Securities and Exchange Commission (SEC) may begin delisting Chinese shares because of China's failure to permit its companies to subject themselves to audit inspection by the U.S. Public Company Accounting Oversight Board. As a New York Stock Exchange-listed company, that's a risk Nio bears along with all other Chinese companies currently trading in the U.S.

On top of that worry, though, last week Chinese property giant China Evergrande Group finally and officially placed itself in default when it missed a final deadline to pay interest due on about $1.2 billion worth of international loans.

What does a Chinese property developer's debt difficulties have to do with Nio stock -- an electric car maker that at last report was doing just fine, with twice as much cash as debt on its balance sheet (according to Yahoo! Finance data) and sales doubling year over year?  

As BBC explained late last week, Evergrande owes money to a lot of banks inside China as well as out -- $300 billion in debt obligations in total. And "if Evergrande defaults, banks and other lenders may be forced to lend less" to companies other than Evergrande, which "could lead to what is known as a credit crunch, when companies struggle to borrow money at affordable rates."  

Now what

Again, you might not think that would worry Nio, which has plenty of its own cash to fund its operations and presumably isn't in need of a loan. But such a crunch could slow the Chinese economy, weigh on consumer confidence, diminish wage growth, and generally mean there's less money available in China for spending on electric cars.

In short, a financial collapse at Evergrande could mean big trouble for China as a whole -- and for Nio stock in particular.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns and recommends NIO Inc. The Motley Fool has a disclosure policy.

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