Nio stock price is at risk as Europe growth strategy face headwinds

Nio (NYSE: NIO) stock price dropped by more than 2.27% in the premarket as concerns about the European market continued. The shares retreat to $10.28, which was much lower than last month’s high of $16.15. Other companies like Li Auto, Byd, and Xpeng also retreated.

European subsidies probe

Nio and other Chinese electric vehicle companies are facing numerous challenges. For example, the number of EV companies in the country has dropped from more than 500 a few years ago to about 100 today.

One of the biggest challenges is that the Chinese market is now saturated, with companies like Byd selling millions of cars every year. As a result, most companies, including the mighty Tesla, Nio, and Li Auto have moved to slash prices.

Therefore, most of these companies are turning their focus to the international market. They have started setting plants in some Southeast Asian countries. Most of these companies are now targeting the vast European market to achieve growth.

Nio received a license to sell its vehicles in Europe in 2022 and is now building a plant to manufacture these vehicles. Most recently, Volkswagen partnered with Xpeng, in a bid to boost its Chinese market and vice versa.

The main catalyst for the Nio stock price retreat was an announcement by the European Union. In a statement, Ursula von der Leyen, the head of the bloc, said that she would launch a probe into China EV companies.

The goal is to assess the impact of subsidies among China’s EV manufacturers and impose tariffs. The bloc is hoping to avoid the failures that affected other industries like steel and solar panels. In a note, an analyst said:

“This is an important move by the commission, signaling the willingness to use trade instruments more proactively to protect the European industry and avoid the replication of the solar panels failure experience.”

EU’s probe could have a major impact on European car brands like Volkswagen, BMW, and Mercedes Benz, which make most of their money in China.

Nio stock price forecast

My last Nio stock forecast is working out well. In this report, which came after its weak earnings, I warned that it could drop to $8.  

Now, the 25-day and 50-day moving averages have made a bearish crossover pattern, signaling that the situation could get worse in the near term. It remains slightly above the important support at $9.44, the lowest swing in January.

Therefore, I suspect that the shares will continue falling as sellers target the next key support at $9.00. A move above the two moving averages crossover point at $11.20 will invalidate the bearish view.