It’s been nearly a year since Chinese electric automaker Nio (NYSE:NIO) made its debut on Wall Street. The firm was dubbed “the Telsa (NASDAQ:TSLA) of China” and the stock made its way to just under $10 per share on its first trading day. However, fast forward to the present, and, after a series of ups and downs, Nio stock price is just $3.39 – and that’s after rallying some 30% over the past ten days.
Growth Concerns
Some of this volatility can certainly be attributed to a few standard risk factors that NIO is facing. Some bumpiness is to be expected in the first year following an IPO, and with all of the worries surrounding Chinese stocks right now, it would be surprising not to see some turbulence from Nio stock price.
However, there are plenty of great reasons investors dumped NIO following the brief sojourn of Nio stock price above $10 in March. The company reported its fourth-quarter earnings on March 5, and the disappointment that followed caused Nio stock to drop more than 20%. Many of the reasons investors were excited about “the Tesla of China” suddenly evaporated after NIO announced its Q1 results.
At the top of the list of disappointments was the company’s abandonment of its plans to build its own factory. Many saw the firm’s decision to build its own Shanghai factory as a step that would increase its value and make it an electric-vehicle firm that could stand the test of time. However, the fact that the firm was generating huge losses and delivering fewer than expected vehicles meant NIO was far from able to afford the costs associated with building a factory.
Hope Is on the Horizon
Since that time, the sentiment towards Nio stock has improved considerably, enabling it to rally above $3.50 over the past few weeks. The firm’s Q2 vehicle deliveries, although still more than 20% lower than its Q1 deliveries, beat expectations. Its latest ES6 sedan has gotten a lot of buzz, as it offers the ability to install a new battery pack. Its EP9 vehicle, which hasn’t hit the market yet, has been named the fastest electric car in the world.
NIO CEO William Li has also resumed talking about plans for a China-based factory. The news reignited investors’ interest in the automaker, which has all but outgrown its current home — a government-run factory. While owning a factory would be a big step towards independence for NIO, the factory can’t be built without help from Beijing. The factory would be funded by Beijing E-Town, a development agency created by Beijing’s city government. The agency says it will invest 10 billion yuan in NIO, putting the firm in a much better position to build a factory.
Competition
NIO isn’t the only electric automaker working toward expanding its footprint in China. Tesla is also hoping to expand its reach in China to capitalize on the nation’s massive embrace of electric vehicles. The company is building its own factory in China, and the plant may start producing cars as early as this autumn.
Many refer to NIO as “the Tesla of China,” but that’s not entirely accurate because Tesla is actually “the Tesla of China.” There’s no argument that Tesla is larger, better funded and- if you can believe it- more organized than NIO. It’s true that NIO is competing with TSLA, but Tesla is still dominant in the electric-car field.
The Bottom Line on Nio Stock
Nio stock is a highly volatile speculative play. The firm’s finances are dicey, and it doesn’t look likely that the car maker will turn a profit anytime soon. While there has been some promising news about NIO lately, you can almost guarantee that bad news is on the horizon. A stock like NIO that trades so wildly on any piece of news isn’t something I’d be willing to risk my hard-earned money on. If you’re young, don’t mind risk and you’ve got cash to spare, Nio stock could be worth a shot. Those who buy NIO have to have a strong stomach, though, because the only certainty when it comes to NIO is that the investment will be turbulent.
As of this writing Laura Hoy did not hold a position in any of the aforementioned securities.
