Nio's (NIO -2.93%) American depositary shares jumped 6% Monday morning, but that gain didn't hold for long. Investors initially carried Friday's rally in shares of the Chinese electric vehicle (EV) maker into this morning's trading. But as of 10:30 a.m. ET, Nio stock had reversed course and was trading down by 3.3%.
The stock's early surge came for the same reason as the double-digit rally Nio saw on Friday. Namely, the hope that China will relax COVID-19-related restrictions that have hurt both supply and demand in the EV sector. But the Chinese government signaled over the weekend that its "zero-COVID" policy would remain, according to a Barron's report.
The report said Chinese officials made it clear that negative economic impacts wouldn't alter that strict containment policy. It has caused suspensions in the manufacturing operations of Nio as well as many other Chinese-based companies. And recent data showing a drop in Chinese exports in October compared to last year gave investors another sign of the effects of the lower production.
Nio has just begun expanding its market outside of China, with exports to Germany, the Netherlands, Denmark, and Sweden. The company had already been shipping its vehicles into Norway as well.
Last week, Nio resumed production in its two facilities in Hefei, China, that had temporarily suspended operations due to the COVID-19 restrictions.
However, the latest report said government officials made it clear that the strict policies would "unswervingly" remain in place despite potential economic impacts. That's not good news for Nio, and investors shouldn't look for the stock to gain traction until the overall COVID-19 situation China has improved.