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NIO: Beijing Gives The Green Light

Jan. 04, 2022 12:30 PM ETNIO Inc. (NIO)BABA, BABAF, DIDIY, TSLA, XPEV127 Comments


  • Beijing signals to the world that investing in NIO and its peers is not as risky as before.
  • In addition, solid deliveries in Q4 give reasons to be optimistic about NIO’s future.
  • As a result, I’m long NIO for the short term and looking only for a rebound, as it’s still hard to justify a long-term position in the company.

Chinese Electric Car Maker NIO Inc. Opens Trading On NYSE On Day Of Company"s IPO

Drew Angerer/Getty Images News

The latest political developments in Beijing suggest that Chinese automakers, which listed shares of their variable interest entities on foreign exchanges, will be able to continue operating their businesses as usual without worrying too much about further oversight

This article was written by

Bohdan Kucheriavyi profile picture

Bohdan Kucheriavyi is a Ukraine-based proprietary trader working at a prop firm. He has been successfully investing personally and professionally since 2015. He combines his knowledge of international relations with his passion for global markets to identify good investments based on momentum and special situations with a specific focus on tech companies.

Bohdan leads the investing group Blacksquare Capital. Features of the group include: an all-weather portfolio, event-driven investment ideas, trade alerts, geopolitical event roundups, a weekly newsletter with updates on all current and watchlist holdings, quarterly market reports, community chat, valuation models - all aimed at helping investors develop an approach to overcome periods of economic and political uncertainty. Learn More.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of NIO, TSLA either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (127)

Article says Beijing gives the green light. For now, until when? its like being in the "Squid Game" like playing red light-green light?
Recommended reading. Becoming China's B-tch. It came out in 2012 and pretty much shows how they increasingly own us. Every month that goes by with an unwieldy balance of payments makes us beholden to the aims of the CCP. Whether it is buying product or their stocks, don't be fooled., We are fueling their progress which will only be used against us or our friends.
tmdoherty profile picture
@astrog8teman Not true. We are hardly "beholden to the aims of the CCP."

The facts tell a far different story. First of all, statistics on China's growing GDP are highly misleading, because they don't take into account production costs, security costs, and social welfare costs. Each of these must be subtracted from GDP, since they are drains (that is, unavoidable expenses) on the economy. When you compare China and the US for GDP adjusted for these costs, it is very clear that the US is far ahead of China, and the gap is increasing, not decreasing.

Also, social welfare costs are about to go ballistic in China, and this will have a big effect on published GDP. Currently, there are approximately 8 working age Chinese available to contribute to pension payments of Chinese retirees, but over the next 3 decades, this 8:1 ratio will drastically decrease to 2:1. This massive expansion of the retired population in China, coupled with the contraction of working-age adults, is by far the largest such trend in the history of the world. Worse, these working-age adults will not be replenished any time soon, since China's population growth is expected to go negative in a few years, and this trend will continue for the rest of the century.

In point of fact, China's economy is currently an economy predicated on "export processing," where goods made from parts that originate elsewhere are merely assembled in China. But for every dollar spent by Americans on goods ostensibly "Made in China," 55 cents goes to the US who produces the components for these items. Stated another way, 55% of goods labeled "Made in China" actually originates in the US.

The other major driving force for China's economy is massive building, but this cannot be sustained. Consider that money-losing SOEs have borrowed massive amounts of money to build build build in pretty much uncontrolled fashion, but that these building increasingly are never occupied, and many are never sold either. A full 20% of residential real estate in China lies unoccupied, and China continues to build immense Ghost Cities that are just that: essentially, empty ghost towns.

The immense borrowing used to build such unneeded and wasteful infrastructure have weighed heavily on the Chinese economy, which is now far more indebted than the US (China's estimated debt is north of 300% of GDP, compared with the US debt of about 120% of GDP, much of that contributed by the Trump administration). This massive debt has accelerated faster than any other country in the history of the world. This is why the Chinese government is cracking down on wasteful, indebted Chinese real estate developers, e.g. Evergrande. But the problem is much bigger than just Evergrande. To deal with this problem, the Chinese government has ordered Chinese banks to not report bad loans (much less mark-to-market), rewrite their loan portfolios, and do anything they can--legal or not--to cushion the blow to the economy. Then there's the issue of Shadow Banking, which has become rampant now, and amounts to at least $5 trillion in additional debt. Writing off these bad loans in total is estimated to cost up to $10 trillion.

So to say that the CCP is our masters, and when they say jump, we can only say "How high?" is simply disingenuous.
@tmdoherty very good counterpoint.
“But for every dollar spent by Americans on goods ostensibly "Made in China," 55 cents goes to the US who produces the components for these items. Stated another way, 55% of goods labeled "Made in China" actually originates in the US.”
Is there a reference for the above? It is kind of comforting if true but want to know the reference
tmdoherty profile picture
@Rushi_P Yeah. Michael Bentley cites Hale G and Hobijn B, "The US Content of 'Made in China'", 2011, FRBSF Economic Letter, Federal Reserve Bank of San Francisco in his book, "Unrivaled". There are others.
How can anyone trust the numbers coming out of a Chinese company that does not comply with FASB? The CCP is bound and determined to have the world kneel at its feet, Nothing is off the table.
Your investment in a company, or decision to invest, should not be rationalized by the size of that investment vs the size of your overall portfolio. Seems to be what you’re doing 🤷🏼‍♂️
@Conman11793 IHow is that...the risk level you are willing to accept is always based on the % of capital deployed in a stock and thus % of portfolio..
No American should ever invest in a Chinese company.
@chemical_lab agreed, I stopped 15 years ago after Petrochina was found to be cooking the books…Thats was it for me, never again
@Conman11793 Enron, Tyco, Worldcom, Lehman, Healthsouth, AIG, Madoff, and Freddie Mac probably turned you off to all US too right?
@chemical_lab we live in a free country !
"Chinese legal system is not as developed in comparison to legal systems of Western countries." Apparently the author is unfamiliar with the parable of Lucy Van Pelt, Charlie Brown and the football.
@sanberdoo bullshit IS has same problem to control fraud. What happen to a Lehman brothers?
tmdoherty profile picture
@bullbearnme It is NOT "the same problem" at all. Just because you can name one US company that went down in flames 13 years ago does NOT mean that China is only doing the same thing that the US is doing.

This is just not true, not by a country mile. I am SO tired of people excusing China by citing bad things that have happened in the US. This "whataboutism" must stop. It is just pure #FakeNews disinformation.
@tmdoherty it is not just one company, there are ton of fraud cars in US. Name it from Roosevelt era market manipulation, fraud companies, American listed company cheating investors, checkout how many lawsuit raise by investor on American companies. It went unanswered. I have lost money by investing in fraud American companies. They will close up the cases and you just donated your money to a so call democratic country that control the media publication.
No sh*t Einstein that NIO was set to under perform.. it’s loss making and is way overvalued!

The one data point on opening of stocks to invest in auto sector means nothing. BABA is still a better bill case given it’s fundamentals if it delists you buy the shares on the HK Exchnage. Poor rationale in my opinion to be bearish
Chinese aircraft carriers are a great and growing investment. all you have to do is buy China stocks, its handing them the money on a silver platter. CCP takes percentages of the investment money for that purpose.
05 Jan. 2022
@thesuperchief Great. The US aircraft carriers wont have to traverse the South China Sea alone then
@thesuperchief you might want to count how many war victim and countries destroyed by US by using US tax payer money.
@thesuperchief so shall we keep buying in Wallstreet to sponsor companies paying taxes to US gov to do research on military and then send missile and troop to other countries by wagging war and caused million of war victims. You can see how many casualties and country destroyed. All main stream media is well controlled.
Cranios profile picture
The headline should remind us all that since Beijing has to "give the green light" for a private business to prosper, then the business is still just as risky as it was before. Once it's no longer advantageous to the CCP, they will give the red light again.
The CCP doesn't give a hoot about being fair, especially to foreign investors.
Investor since ‘73 profile picture
@Cranios They are partners in those businesses.
tmdoherty profile picture
@Cranios True. Laowai exist to be used by Chinese. That is their designated role in life.
anthonymaw profile picture
As a proud person of great Chinese ancestry, I agree with the author that Chinese stocks are "uninvestable" on the simple reason that the *COMMUNIST* regime is fundamentally anti-CAPITALISM. While China has adopted capitalist market economy for the past 4 decades and done well, the fundamental ideology in China is NOT to pump the wealth of the rich, unlike the United States where making rich people richer is the consistent underlying modus operandi.
tmdoherty profile picture
@anthonymaw I would say that the CCP is not really anti-capitalist per se. It's just that they: 1) tend to deeply mistrust foreigners and any foreign influence on China and Chinese; 2) insist on stacking the deck in their favor; 3) are inherently opaque, and not open to any form of criticism from anywhere, any time; and 4) have a vested interest in maintaining systemic crony-corruption that they can and do quietly benefit from economically--ironically, at the expense of the common people.

I also think you greatly exaggerate when you imply that the US has a vested interest in making rich people richer. Quite the contrary. I guess you've never listened to Bernie Sanders or any of the other major preachers against the (real or imagined) "evils" of the rich?

The Democratic party is acutely aware of the imbalance in income in the US. But then again, that's certainly no different than China, which has its own ever-growing (and accelerating, in comparison to the US) wealth inequality gap. In China, the top 10% own a proportion of the country's wealth that is about equivalent to that owned by the top 10% in the US now, according to the USC-Annenberg School of Business. Democrats rail constantly about taxing the rich, and they do that whenever they get in power, to the cheers of millions. They are also anti-wealth in other meaningful ways, including in regulatory matters, reflecting a mistrust of the rich that has been well-grounded in history. In fact, the Democratic party in general are severely criticized for pursuing "communist" or "socialist" policies (ironically, in sharp distinction with China, which occasionally mouths socialist words only).
anthonymaw profile picture
The CCP doesn't care about investor wealth. They have torpedoed China tech stocks as part of their crackdown on the rising influence of the tech sector. The CCP watched with revile, disgust and FEAR at how tech and social media in particularly helped cause the 1/6/21 US Capitol Insurrection (congratulations USA!) and have no hesitation of cracking down on Chinese tech and Chinese tech billionaires even if it destroys the wealth of shareholders. It's already been suggested that the muzzling of US politicians and candidates on Facebook and Twitter is the US tech sector effectively influencing US politics. Hence to keep the discussion on topic I would not personally invest in China stocks since the CCP "knows what's best" for China and acts accordingly without regard about investor's wealth. If you're American stay out of Facebook and Twitter stock - Trump will get his revenge on them when he gets to be President again.... ;-)
@anthonymaw the same thing happened in US too. It is call Anti-Trust on big corporation. Read here www.investopedia.com/...

By the way , there are 56 ethnics in China. Are you from Hong Kong?
Jion profile picture
Answer from another Chinese stock's IR (Hong Kong based CLPS Inc, ticker: CLPS):

"We believe that our recent stock price performance is generally due to market behavior, including SEC‘s recent finalized and amended “Holding Foreign Companies Accountable Act” in Dec. 2nd, wherein Chinese companies listed in the U.S. markets may face delisting in the next 2-3 years if PCAOB won’t inspect these companies’ audits. Majority or all of U.S.-listed Chinese companies’ stock price have been impacted by this policy. However, we are continuously and closely working with our U.S. lawyer and independent auditor to ensure that we comply with PCAOB’s regulation, as well as in parallel with Chinese regulation. We are optimistic that more and better disclosures will be promulgated that could benefit the listed companies, regulators and shareholders."As you see, they care mostly about PCAOB and at a horizon of 2 to 3 years, and not China's regulators anymore.
John_III_XVI profile picture
@Jion I dare them to say that out loud in China where the comrades can hear them. Uh Huh!
@John_III_XVI at least they won’t drop bomb or missile anytime into any countries and cause civilian casualties but keep down the press that make everyone forget the shit that happens. The world media is control by the largest economy in the world
Jion profile picture
@John_III_XVI the whole situation reminds me of the cold war. Most believe that the communists spy everyone, then you say they don't already know? This is about finance, so some have mixed different things...In a few months, the tide will change so the media. Then the U.S. listed Chinese stocks will go back to their normal discount to the U.S. stocks, and those who invest/trade will follow the money. But the contrarians are ALREADY watching and picking...
prudent 576 profile picture
American RIVN or TSLA please.
@prudent 576 monopoly to kill competitor? This is not a healthy way or shall we say an act of bully to suppress other from growing their own business and industry without competition. This is shame.
eduso profile picture
"solid deliveries in Q4"? I stopped reading here. You must be joking. Check other Chinese EV-makers. With one, deliveries went up over 5 times since last year, not 2 times as with NIO.
@eduso because their production capacities have not been saturated yet. NIO will more then double production capacity this year. Besides, Xpeng and Byd have to sell 2x cars as Nio to make the same money.
tmdoherty profile picture
@eduso I agree. 80,000 vehicles delivered in 2021 is no accomplishment, AND no great improvement year/year, especially for a company that is hyper-valued ($50 billion market cap vs $83 billion market cap for VWAGY). Volkswagen plans to deliver 1 million electric vehicles this year.
@tmdoherty But VW will fall far short...as they did this year.
I like NIO but I would never trust Beijing. Trust em as far as you can throw em I say!!
@MaxZanetti every countries has it own problem. The same problem happened in US when they pass a law. So business is still business.
Titans of Carmaking Are Plotting the Overthrow of Elon Musk


"In the other corner are giants of scale: Volkswagen AG and Toyota Motor Corp. The world’s two biggest automakers — each sold roughly 10 or 11 cars for every one Elon Musk did last year — realize the age of the battery-powered vehicle is here and are gaming out how to stay on top. Within five days of one another last month, these masters of mass production laid out plans to splurge $170 billion over the coming years to preserve their claim on an industry they’ve dominated for decades."
Reluctant Investor profile picture
If the photo above is a NIO car I’m not a buyer of the car or the stock.
@Reluctant Investor It's a concept car, NIO Eve. Concept cars are sometimes made to look unconventional and sometimes ridiculous compared to production models on purpose.
@Reluctant Investor If you would visit the Nio website, you would know.It's a prototype.
The cars are very beautiful.Top product.
It is a matter of fact that all companies in Communist China are controlled by the Chinese Communist Party. Doing business there is directly or indirectly supporting the Communist Regime, who committed genicide against its own ethnic minorities, destroyed Democrarcy in Hong Kong, and threatened Democratic Taiwan. And more and more evidences suggest that the the CCP regime intentionally allowed the COVID virus to spread to the world to make themselves look better.

Money or soul? It is your choice to make after all.
@Cosmic Dust Ha ha. China is so terrible that, just last week, the darling of US investors and government, Tesla, opened up shop in Xinjiang province...
@Cosmic Dust China has loads, Millions upon Millions, of good people. Whatever you think of their Commie Government, you have to admit that they have taken Hundreds of Millions of poverty living citizens and moved them out of that class. Hundreds of Millions in the past two or three decades. That is quite an accomplishment. Of course we helped them by sending Millions of our manufacturing jobs over to China.

We have loads of people across our grand country living in poverty and do not even have a plan to get them out of that despicable condition. Maybe we should not have allowed All those jobs to be off shored to China and other countries. So, please let me know which country is helping those in need the most?

The Republicans could care less about poor folks in this country. The Democrats say they do, but in fact they have done next to nothing just like the Republicans. In Commie China, they have hauled out Hundreds of Millions from poverty. That is great for them and not so great for us.

Money or Soul? I could say the same for our country. I suggest you do a bit more homework about the Country of China. There is more to understand than throwing out the word Communist as you did.
@Hopeful17 do you know how much earning qualifies one as in poverty in the US vs. in China? A bit googling is going to surprise you. Poverty in this country vs in China is quite a different concept.
FlexEthos profile picture
Well researched and easy to track your thought process over the months. Thanks for sharing.
"As a result, I’m long NIO for the short term and looking only for a rebound, as it’s still hard to justify a long-term position in the company."

You seem to lack an understanding of the huge risk involved in holding NIO shares. TSLA shares are also quite risky now.
@6228371 do you mean the American hedges such as Blackrock didn’t know the risk of holding NIO?
@6228371 Haha, try telling that to the TSLA cult following. It odd how little anyone brings up the whole issue with China controlling all the rare earth metals right now as well. I'm sure that going to end well...
tmdoherty profile picture
@6228371 The risk in shares of TSLA is dwarfed by the risks of "owning" shares (actually, owning ADRs based in the Cayman Islands) of NIO. Specifically:

1) The CCP allows only Chinese citizens to own shares of any company in China. That severely limits (eliminates, for all effective purposes) any possible legal remedies for everybody else in the world who invests in Chinese stocks.

2) Because of #1, a Chinese company has no real incentive NOT to defraud investors.

3) There are additional CCP-risks associated with all Chinese stocks. For example, you definitely cannot eliminate the possibility--the PROBABILITY, in some cases--that the company will be declared "illegal" and that the CEO will be disappeared.
Also why is this the top of trending? It’s got 22 comments (including mine). Smells like outside $$$$
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