What happened
Shares of Chinese electric car maker Nio (NIO 2.11%) have been on a wild ride the past two weeks. Its American depositary shares are down about 15% overall in that time, but it would look much worse without this week's gains. Through Friday morning trading, Nio shares have soared more than 25% this week alone, according to data provided by S&P Global Market Intelligence.
So what
The reason for the rebound is mainly relief from delisting concerns related to U.S.-listed Chinese companies. But Nio's business is also at a pivot point for growth. Combine those things with a share price that had been tumbling, and we have a recipe for this week's share gains.
Image source: Nio.
Now what
Delisting fears were stirred up last week when the Securities and Exchange Commission (SEC) named five U.S.-listed Chinese companies that failed to comply with the Holding Foreign Companies Accountable Act (HFCAA). That law has been in place since December 2020, and gives regulators the ability to delist foreign shares that don't comply with U.S. accounting and auditing standards for three straight years.
Nio was not among those listed, but the move highlighted the potential for the company to be named with a risk of its shares being delisted from the New York Stock Exchange. Nio also recently announced it began listing its shares on the Stock Exchange of Hong Kong last week. Investors seemed to fear this might signal the company itself is preparing for the possibility of leaving the U.S. exchange.
But another signal from the Chinese government changed investors' mindset. China said that it is cooperating with U.S. regulators to create more stability for overseas listings, and investors decided it was time to take advantage of the prior stock drop.
As the risks of delisting and geopolitical uncertainty are playing out, Nio's business is moving forward in meaningful ways. The company has recently worked to double its production capacity to at least 20,000 electric vehicles per month. It has three new products coming in 2022, including its luxury ET7 sedan that should begin deliveries this month. It also has plans to continue an expansion into the European market that began with its entry into Norway last year.
All told, investors decided that the share price had appropriately compensated for the risks this week, driving the stock higher.
