With a market cap one-tenth the size of famous electric-vehicle rival Tesla (NASDAQ:TSLA), Nio (NYSE:NIO) has become a niche favorite. But the price drop of NIO stock from $11 to $3 has shaken out some less-committed investors.
Concerns over trade tensions have hit shareholders hard, but is that the only factor to consider as Nio stock struggles?
A year after the Nio stock IPO, I’m willing to stand by the company as the market determines a fair range for the share price. Unlike most investors and analysts, I view the lower stock price as an opportunity to accumulate NIO shares and lower one’s cost basis, not an excuse to bail on a company with plenty of potential.
The Trade War Punished NIO Stock
Because it’s based in China, Nio was hit particularly hard in August, a rough-and-tumble month in the ongoing Sino-U.S. tariff conflict. When President Donald Trump retaliated against China’s tariff increases with a tweet announcing a 25% to 30% increase in tariffs on Chinese goods — slated to take effect Oct. 1, and will comprise $250 billion worth of additional tariffs — the NIO stock price absolutely hemorrhaged.
In fact, a look back at the price action for Nio stock shows that practically every time the broader markets swooned on trade-war escalations, NIO shares fell further than most stocks on the New York Stock Exchange. But this should work both ways: when there is finally a trade pact that doesn’t deteriorate a day or two later, I believe that a clear path to $11 will be in the works and the same conflict that broke Nio investors down should build them right back up.
Bumps in the Road
Besides the trade battle, there was a convergence of unlikely events that added pressure to the NIO stock price. I do not expect a repeat of these events, which therefore should allow Nio investors some time to breathe, recuperate, and start building their positions again.
Mid-August saw the departure of co-founder Jack Cheng “due to his age,” meaning that he (apparently) didn’t bail because of any concerns about the company’s future. Nio’s other co-founders, Lihong Qin and William Li, will stay on board; moreover, an official company statement declared that Cheng “will continue to be William’s personal advisor, and will support the company in supply chain and partnership.”
At around the time of Cheng’s exit from the company, subsidies for electric vehicles from the Chinese government expired. Prior to that, Nio revealed that they were abandoning plans to establish an office in Silicon Valley, California, and that the company was laying off around 3% of its employees in China.
NIO Stock Looking Ahead
After the layoffs are finalized, Nio’s workforce will comprise around 7,500 people. Layoffs are always an unfortunate and disruptive event, but I view this as the start of a new chapter for a leaner, more battle-worn Nio. The fact that Nio has also sold off its Formula E racing team is, I believe, emblematic of the company’s commitment to cost cutting — a good sign as Nio strives to regroup and move past a challenging summer which NIO stock investors would rather forget.
Perhaps most importantly, Nio seems dedicated to righting its perceived wrongs; for instance, the much-publicized battery recall for the company’s ES8 model vehicles took half as long as expected. With Nio’s ES6 model SUV’s in production and ready to roll out soon — and Nio’s vehicles remaining much more affordable than Tesla’s comparable offerings — I still see Nio as a strong contender even with analyst downgrades and investor pessimism.
The Takeaway on Nio Stock
Nio stock’s first year wasn’t especially auspicious, but the series of unfortunate events isn’t likely to repeat itself. When this trade war finally ends, NIO shares could be poised for a startling and spectacular comeback.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
