Actions of Tesla, Inc. (NASDAQ: TSLA) and its Chinese rival NIO inc. (NYSE: NIO) have recently started to diverge in stock performance, which may reflect weakening sentiment towards the US company.
How Tesla and Nio are historically correlated: Looking back on history since Nio started trading as a public company in the United States in September 2018, Nio and Tesla shares have mostly traded in the same direction, except during times of leakage. .
Once such a divergence occurred in late 2019, when Nio was struggling to stay afloat as a ‘going concern’ due to the liquidity crunch it was facing.
Shares converged after Nio began to sort out his liquidity problem by arranging debt financing.
For a while, until mid-October 2020, Tesla outperformed Nio even as stocks moved in the same direction.
As Nio’s fundamentals improved, shares of the Chinese electric vehicle maker significantly outperformed Tesla shares. Momentum took Nio’s stock to an all-time high of $ 66.99 on January 11.
Tesla peaked a bit later, with stocks hitting an adjusted high of $ 900.40 on January 25.
Both stocks cooled subsequently, with the market-wide tech sell-off in March pushing them down further.
However, the directional correlation was retained. The patchy recovery that followed after the lows in early March also occurred in parallel for Tesla and Nio.
Tesla and Nio shares had an interest-free May with the former pulling out completely to the March low of $ 563 but maintaining support around the level.
Nio, however, breached the early March low of $ 35.21 and fell to a new low of $ 31.22 on May 13.
While Nio has recovered well from this low, Tesla has struggled to break out of the $ 600- $ 630 trading range seen since late May.
Related Link: Why Wells Fargo Says Tesla’s Present Is Perfect, In The Future
Nio wins as Tesla falls: Tesla’s stock trajectory has deteriorated since early June, even as Nio soars. Since early June, Tesla stock has fallen 3.5%, while Nio has risen by around 13% over the same period.
Does the divergence reflect Tesla’s worrying fundamentals? The company is under pressure in its main Chinese market. A combination of factors, including negative press about safety issues with its cars and the Chinese government’s growing control over sensitive data collected by on-board cameras, have had an impact on Tesla.
After weak sales in April, Tesla’s sales rebounded in May.
Tesla’s complex business: Despite the recovery, the company faces competitive pressure as it takes on local electric vehicle rivals in China.
Globally, Tesla’s electric vehicle market share fell from 29% in March to 11% in April, according to a CNBC report, citing analysts at Credit Suisse.
Tesla, while making a profit, is often criticized for relying on non-essentials like EV credits and Bitcoin trading. Vehicle margins are under pressure in the face of competition from new entrants and traditional car manufacturers.
Expressing concerns about Tesla’s medium-term situation, Wells Fargo Securities analyst Colin Langan described declining demand for Model 3 / Y vehicles, rising raw material costs for electric vehicle batteries. and US regulatory risk as the biggest business risks in a note.
Nio, which has had its fair share of issues with chip shortages, is resisting amid management’s focus on service and products. The company laid the foundations for international markets with its expansion in Norway. Its battery swap model is a hit with users.
To make its premium models affordable for users, the company has developed innovative service offerings such as battery as a service and driver assistance as a service.
The last word: Tesla’s short- to medium-term trajectory will largely depend on how efficiently it can keep its rivals at bay and continue to outperform them, and seek margin improvement.
Related Link: Tesla Vs. Nio vs. XPeng versus. Li Auto: How regulatory credits for electric vehicles in China are piling up
Photo courtesy of Tesla.
Final ratings for TSLA
|May 2021||Wells fargo||Launches the activated cover||Equal weight|
|Apr 2021||Canaccord Genuity||Maintains||Buy|
|Apr 2021||Swiss credit||Reiterates||Neutral|
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