Why Nio Shares Jumped Higher Monday

What happened

Nio (NIO 3.49%) shares shot higher by as much as 10% Monday morning, and it has to do with the highly competitive Chinese electric vehicle (EV) market. As of 11:35 a.m. ET, Nio stock had pared some of that gain but was still trading up by 7.7%. 

So what

The move comes from what should be considered welcome news for Nio and other relatively small Chinese EV makers. Last week, it was reported by the Financial Times that U.S. car giant Ford Motor Company would be scaling back its EV business in China. Today, Ford CEO Jim Farley confirmed the company is going to focus on less competitive markets with its EV offerings. 

Now what

Nio shares are down by more than 13% over the last several months as it has failed to grow its vehicle delivery rate as fast as many investors hoped. Fears grew that larger automakers including Tesla and BYD were squeezing Nio and other local EV makers out of market share in China. 

With other established automakers like Ford growing their EV lineups, the competitive situation in China was looking like it would only get worse for Nio. But Ford is choosing to focus on other, less competitive markets. The report said Ford CEO Jim Farley warned that foreign companies could be pushed out of the Chinese market by local EV makers. 

Today, prior to Ford's meeting with investors, the company released a note detailing what it would be discussing at today's presentation. Farley confirmed that Ford is going to focus on profitability over volume. He stated, "The days of being all things to all people are over at Ford," and the focus would not be to gain "slivers of [market] share" in saturated markets. 

That gives investors more optimism that Nio can recover from a recent slowdown in its production growth. In the first four months of 2023, Nio delivered only 22% more EVs than it did last year. That's not enough to think Nio can win in the Chinese market among the other fast-growing companies. Having one less competitor in Ford is good news and gives Nio a better chance of growing into a profitable EV supplier.