Last Friday was a heck of a day for Nio (NYSE:NIO) shareholders — but not in a good way. A disheartening 6.7% slide undoubtedly took out more than a few stop-losses and induced some stockholders to cry uncle. But should investors abandon this Asian electric vehicle up-and-comer?
Investing legend Jack Bogle once said that “if you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks.” That’s a form of tough love, and a message that I’d like to pass on to skittish long-term investors — and particularly to Nervous Nellies watching the Nio stock price flounder and flail.
In the wake of a rash of highly publicized electric vehicle fires involving both Nio and rival Tesla (NASDAQ:TSLA) models, on June 17 the Chinese government ordered all electric car manufacturers to perform safety checks on their vehicles. The ES8, one of Nio’s luxury sport utility vehicles, had burst into flames a week prior to the ruling. One can’t blame the Chinese government for coming down hard on the electric vehicle market.
Electric Dreams Become Shareholder Nightmares in NIO Stock
It’s natural for this image to worry anyone old enough to recall Ford Pintos catching fire back in the 1970s. After all, this was the third NIO ES8 to catch fire since April. On top of that, CleanTechnica released its monthly report on Chinese electric vehicle sales with a list of the 20 top-selling models listed for May. Nio was conspicuously absent from the list.
To make matters worse, the Chinese government recently cut its electric vehicle subsidies in half, stating that the move is intended to “advance the industry by selecting the superior and eliminating the inferior.” It was a real kick in the teeth for already embattled Nio — and at the worst possible time for investors.
Can We Have Some Good News, Please?
And so, a single-day 6.7% decline was certainly in order; the market had to price in the bad news sooner or later. Nio bears have also correctly cited the company’s first-quarter loss of $390.9 million and 4.5% cut to the company’s workforce. CFO Louis T. Hsieh admitted that they expect “an even more challenging sales environment and anticipate overall sequential demand and deliveries to decrease” in the second quarter.
While I won’t discount the company’s challenges since the company’s September IPO, I wouldn’t jump ship just yet. As a bargain hunter, I’m not against starting a position in Nio stock at the current price, which is much closer to its post-IPO low than its high of $13.80. (And it never should have been that high in the first place. I suppose that’s why they call it “price discovery,” right?)
Personally, I’m excited about the rollout of Nio’s newest electric vehicle, the ES6 SUV. Its starting price is a very reasonable $52,000 and it has a swappable battery — a nice feature for the automaker’s second mass-production model. Nio also offers a concierge service that can take and charge your electric vehicle as needed, an amenity that ought to come standard with all vehicles of this type (are you listening, Mr. Musk?).
More Than Just a Tesla Wanna-be
Don’t misunderstand — a long position in Nio stock is a speculative bet through and through. But then, so are Tesla shares, which are a heck of a lot more expensive than NIO. And if you believe that Nio has what it takes to steal Tesla’s thunder, a cautious allocation could provide some nice upside as the electric vehicle revolution presses onward.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.