Shares of Nio (NYSE:NIO) have been hit hard today. How hard? Currently, NIO stock is down approximately 12% on some pretty important news that might be overlooked by some investors.
Let’s dive into the real reason why NIO stock is plunging today.
The Chip Shortage Is a Big Deal
Nio’s appeal to EV investors has mainly been on the company’s growth prospects. Yesterday, an announcement that the company was planning on entering the European market sent shares dramatically higher. The company would look at expanding into Europe first, targeting other international markets next year. Investors looking for global EV players may have thought they had found such a company in Nio.
The race to global EV domination is one which is ongoing. Accordingly, investors bullish on this sector expect sky-high growth in the near term to justify the existing valuations of these carmakers.
Thus, recent reports outlining the fact a chip shortage could derail short-term growth has taken this stock markedly lower. The company announced during its earnings call that slower growth as a result of chip shortages would impact EV production this quarter.
Such a shortage would have a dramatic impact on Nio’s target of 100,000 deliveries this year. In 2019 and 2020 respectively, the company produced 20,565 and 43,728 vehicles. A production increase of more than 125% year-over-year may be in question as a result of this shortage.
The Chinese market is huge in its own right. However, it appears this chip shortage is derailing expectations Nio could gobble up global market share sooner than expected.
Earnings Call Also Not Good for NIO Stock
Nio’s recent earnings call was also inherently bearish, as the company lost more than analysts expected. Because investors have a relatively murky line of sight into this company’s earnings moving forward, investors seem to be selling this stock in favor of developed market EV producers.
Nio’s revenue did double, and the company noted expectations of continuing margin expansion on the horizon. However, growth investors appear to be willing to punish companies that don’t meet short-term targets. Accordingly, NIO stock looks like one with some pretty hefty downside momentum right now.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.
