Nio Inc – ADR (NYSE: NIO) shares were climbing solidly Tuesday, extending the previous session's gain. The strong advance came despite some negative data points emerging on the Chinese auto market, which is the biggest in the world.
The coronavirus outbreak is expected to have wide and deep ramifications for the Chinese economy and the auto industry, which was experiencing softness even ahead of the virus outbreak, is unlikely to be spared.
'So Many Negative Issues' For Chinese Auto Sector
Auto sales in China are set to see a record plunge in the first two months of 2020, putting at risk the modest recovery seen in the second half of 2019, Bloomberg reported, citing China Passenger Car Association Secretary General Cui Dongshu.
Auto sales for the first two months of the year may have declined 25-30%, potentially leading to a 5% drop for the full year, the report said.
"China's car industry has never had to factor in so many negative issues — the challenges have been piling up," Cui reportedly said.
"It will take months for economic activity to return to normal. People's purchasing power will be undermined by falling incomes."
With China virtually shut down for the week, automakers are likely to face supply chain issues and parts shortages even after normal activity resumes, the report said.
The Bloomberg report also quoted auto parts maker Aptiv PLC (NYSE: APTV), which warned of an 11% drop in its production and a 15% drop in auto production in China.
What's Driving Nio Higher?
Nio shares, which have been staging a steady recovery since the company reported its third-quarter results in late December, began to pullback following the coronavirus outbreak.
From a high of $5.65 Jan. 22, the stock retreated to a low of $3.52 Monday before it made a recovery.
The stock ended Monday's session 7.41% higher at $4.06.
The buying in the stock may have been triggered by the broader market recovery following a coronavirus-induced slump. Bargain hunting following the stock's drop below the key psychological barrier of $4 is also likely generating some strength.
Fundamentally, Nio was beginning to see green shoots of recovery following a summer lull in 2019.
Nio shares were trading 10.74% higher at $4.48 at the time of publication Tuesday.
Photo courtesy of Nio.