After a week of growth, China’s Nio (NYSE:NIO) was hit hard last Friday closing at $2.64 — a 6.7% drop. The Chinese electric car maker has had worse days, but the plummet in NIO stock is disheartening to investors who hoped the company was on the road to recovery after bottoming out at $2.42 the previous week.
What hit NIO so hard last week, and does the company have any prospect of clawing its way back to its IPO levels?
A Wave of Bad News Catches Up with Nio Stock
Up until Friday, NIO was actually having a pretty good week — at least in terms of the stock market. Nio stock price opened on Monday at $2.39, reaching as high as $3.05 on Thursday. It opened on Friday at $2.88 then swiftly went downhill, dropping as low as $2.57 before recovering slightly to close at $2.64.
What happened on Friday that caused such a panic with investors? It seems as though the triggering issue is less of a singular event and more a reaction to bad news that had been piling up throughout the week.
On June 17, the Chinese government issued an order to electric car manufacturers to perform safety checks on their vehicles. This came after recent high-profile fires involving electric cars, including models from Tesla (NASDAQ:TSLA) and NIO. One of Nio’s luxury sport utility vehicles, the ES8, burst into flames the previous week.
Considering this was the third NIO ES8 to catch fire since April — and there have been just 15,000 ES8s sold altogether — the optics aren’t great.
On Thursday, CleanTechnica published its monthly report on Chinese electric vehicle sales, noting that, “May saw the Chinese plug-in market hit the brakes.” According to that data, sales of electric vehicles (EVs) in May were up just 2% year-over-year with big gains being made by foreign manufacturers like Tesla. Of the 20 top-selling models listed for May (with unit sales ranging from just 500 to 7,079) NIO didn’t make the cut.
Add this week of challenges for NIO to the more general issues currently plaguing China’s EV market — a nearly 50% cut in subsidies for electric cars and concerns about the impact of the escalating trade war between the U.S. and China — and it’s no wonder Nio stock is down so dramatically from its IPO levels. It also helps to explain why nervous investors reacted in a way that resulted in a big loss for that Nio stock price.
Did the Market Overreact?
There’s no denying that NIO has had its fair share of problems. At the end of May, the company reported a $390.9 million quarterly loss, along with slashed R&D spending, layoffs, slowing sales of its flagship ES8 SUV (down 50%), and a delay in releasing its ET7 sedan.
Despite the long list of challenges and setbacks, there’s still a case to made that NIO has time to turn things around. For one, the company is in favor with the Chinese government. At the end of May, a joint venture was announced between NIO and the government-backed E-Town Capital, which pumped $1.45 billion into the company, which resulted in a Nio stock price pop.
In June the company also began delivery of its new ES6 SUV, a five-seater which starts at around $52,000 and features a swappable battery pack to eliminate the wait for a re-charge. The company says it has pre-orders for more than 12,000 of the new electric SUVs.
Friday’s loss for the Nio stock price is yet another sign of pessimism that the company is on the road to success. But recent positives — the support of the Chinese government and the ES6 launch — could mark a turning point for the Chinese EV maker.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.