Nio (NYSE:NIO) enjoyed a snapback from $2.50 and back to the $3.26 recent close, thanks to Tesla (NASDAQ:TSLA). But with a $3.5-billion valuation and the stock at 3.3 times sales, the bounce may prove temporary.
Tesla reported second-quarter production of 87,048 and vehicle deliveries of 95,200. Orders exceeded deliveries, so as the company enters Q3, its order backlog will increase. The news brought hope for Nio, whose sales in China are sluggish. In May, Nio reported weaker demand and laid off 70 staff as it closed its Silicon Valley location. It will still keep its North American office, which has 600 employees.
To recharge sales momentum, Nio needs China introducing fresh new incentives. Without a tax break, sales will stall, even as Nio introduces new, higher-end models to the market. The luxury EV is sensitive to prices. As U.S./China trade relations suffer, so too will demand for Nio vehicles.
Nio’s Catalyst: Tax Exemption in China
Nio’s business health is not a function of Tesla’s positive sales momentum. It relies exclusively on the Chinese markets and is dependent on tax exemptions. So, the new energy vehicle tax exemption announced on July 2 could spur Nio unit sales. The NEV is effective from Jan 1, 2018, to Dec 31, 2020. This should help drive a rebound in demand for Nio vehicles.
