What happened
Shares of Nio (NIO 3.49%) surged this morning and were up 8.2% as of 10 a.m. ET. The electric vehicle (EV) stock has been highly volatile in recent weeks, but thanks to its Friday morning rally, Nio is all set to wrap up what could eventually be one of its strongest weeks in recent months. As of this writing, the stock is already 26.5% higher through the week.
China is driving all of today's gains in Nio shares.
So what
Global demand for EVs is booming, and China has emerged as the fastest-growing EV market in the world. That means EV makers in China like Nio have massive growth potential.
Yet Nio shares plunged in recent months as a multitude of factors hit investor sentiment, including things that are beyond the company's control. That's also why the stock is on fire on a morning like today when positive updates from China are flowing in.
Image source: Getty Images.
Two of the biggest threats to China that have emerged in recent days are possible sanctions from the U.S. if the nation assists Russia in any way and the potential delisting of Chinese stocks from the U.S. The latter, in particular, sent Nio shares diving, especially after the Securities and Exchange Commission named and warned five Chinese companies last week for failure to comply with its audit rules. Nio even listed its stock in Hong Kong on March 10 to offer its investors an alternative trading venue if its stock was delisted from U.S. exchanges.
The Chinese media has just reported that China is apparently in talks with U.S. regulators to avoid such delisting.
In another major development, talks between President Joe Biden and President Xi Jinping are underway this morning, with the Chinese media reporting that Xi said conflicts like the one in Ukraine are in no one's interest.
In short, it's evident China wants to avoid any sanctions from the U.S.
Meanwhile, there's something else China is willing to do that it hasn't done before: ease its tight zero-COVID policy that can shut down manufacturing hubs overnight and cost the economy heavily.
This morning, Xi said China will still strive to prevent coronavirus cases but in a way that minimizes any impact on economic and social development.
China's no-tolerance COVID policy has hurt companies badly over the past couple of years as they've been forced to shut factories overnight. With that country grappling with its worst outbreak yet, investors in Nio feared a potential slowdown in production if the company had to halt operations due to lockdowns at a time when it's striving to scale capacity.
Today is one of the rare days when updates from China seem to be pro-business and should work in favor of early growth companies like Nio.
Now what
Nio has some solid growth plans for 2022, but a great deal depends on macro factors. With today's developments signaling a potential easing of at least some of those factors, investors appear to be buying Nio stock while it's still significantly down from its highs.
