Tesla Truce Is a Huge Catalyst for Nio Stock

According to delivery data, China-based electric vehicle manufacturer Nio (NYSE:NIO) isn’t firing on all cylinders. Yet, there’s a reason to watch NIO stock, even if you’re not prepared to go all-in on the shares.

As a famous automaker opts to “play ball” with China’s government, Nio can now be more competitive and successful.

I’ll admit, I’ve been less-than-optimistic about Nio lately. Things are starting to look up, though. I’m not quite prepared to recommend an investment in Nio in 2023.

However, at least now there’s a reason to anticipate better days ahead for Nio and its stakeholders.

Nio Needed a Catalyst, and Just Got One

In a painful decline, NIO stock has fallen from $62 in early 2021 to a recent price of around $10. Furthermore, the outlook for Nio has improved little lately.

The automaker’s monthly EV deliveries have deteriorated: 10,378 in March, followed by 6,658 in April and then 6,155 in May.

Therefore, I’ve been bearish on Nio, but there’s a ray of sunshine now as rival EV maker Tesla (NASDAQ:TSLA) just made an unexpected move. Specifically, Tesla just effectively ended its vehicle price war with Nio and other EV manufacturers in China.

Is Tesla CEO Elon Musk finally maturing and learning to “play ball” with China’s government? If so, this would explain why Tesla has agreed to promote “core socialist values” in China.

Tesla consented to “maintain fair competition” in China and “not disrupt fair competition with abnormal pricing.”

What Tesla’s Compromise Means for NIO Stock

It’s difficult to prove a cause-and-effect relationship, but I suspect that Tesla’s series of EV price cuts have had a direct, negative impact on Nio’s delivery figures.

Tesla and 15 of its China-based EV-market competitors just signed a fair-competition pact, though. So, now Nio can operate on a more even playing field with Tesla and other rivals.

All of this might seem strange to U.S. car buyers. After all, if Tesla wants to slash its vehicle prices, that’s good news for consumers. However, the rules are different in China. Hence, Tesla has to play the game differently there.

Here’s what’s most important for Nio, though. Most likely, the company won’t have to continue reducing its EV prices to keep up with Tesla.

As you may recall, Nio cut its vehicles’ starting prices in China last month by 30,000 yuan, or the equivalent of $4,200 at that time. NIO stock investors should be glad that Nio probably won’t need to do anything like that again in the near future.

Keep a Close Watch on NIO Stock

It’s going to take more than an agreement with Tesla to make be flip bullish on Nio. What I’m looking for is a turnaround in Nio’s monthly EV delivery numbers.

Still, it’s encouraging to see Nio’s shareholders finally get a major positive catalyst, even if it comes from a rival automaker.

In the final analysis, investors shouldn’t be super-confident about NIO stock yet. It’s fine to keep Nio on your watch list, however, for further developments.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.