Shares of Chinese electric vehicle (EV) maker Nio (NYSE:NIO) are down nearly 7% today on reports that China is starting to enforce new Covid-19 lockdown measures. The move could impact manufacturing in the country of 1.4 billion people.
NIO stock isn’t the only one falling today on reports of a Covid-19 resurgence. Shares of competing EV makers Xpeng (NYSE:XPEV) and Li Auto (NASDAQ:LI) are also down today on concerns that China is again heading for broad-based lockdowns and mass testing as part of its zero-tolerance Covid policy.
NIO stock has fallen 37% year-to-date to trade at about $21 per share.
What Happened With NIO Stock
Shanghai, China’s largest city and its manufacturing epicenter, recorded 69 new Covid-19 infections over the weekend, the most since May. In response, government officials have begun to implement new restrictions, including on businesses, to try to halt the spread of infections. Mass testing is again underway in Shanghai after a highly-transmissible omicron subvariant was detected in the city’s population.
The prospect of new curbs on manufacturing in the region is sending the share prices of NIO, XPEV and LI down today as investors assess how it will affect production and deliveries in the coming weeks and months. All three automakers were negatively impacted when China instituted widespread lockdowns in April and May, and they had only begun to recover in June.
Why It Matters
Nio delivered about 7,000 vehicles in May, up 4.7% from 2021. However, this figure was considerably less than its manufacturing capacity due to Covid-19 lockdowns in April and May. Last month, Nio said its manufacturing is “gradually recovering” from the disruption.
Therefore, the threat of renewed Covid-19 restrictions or a complete halt in its manufacturing is coming at the worst possible time for Nio and other Chinese EV makers.
Even before the latest round of Covid-19 restrictions, many analysts were revising down their forecasts for EV production this year. The spring lockdowns in China led Jeffries Financial Group to lower its forecast for worldwide electric vehicle sales this year. It now expects 8.7 million vehicles sold, down from 9 million previously in a knock on the entire EV sector.
What’s Next for NIO Stock
We’ll have to watch and see how aggressive and wide-ranging the new Covid-19 restrictions in China become. Should the country go back into full lockdown as it did this spring, it could be disastrous for the production and delivery of EVs in the country. Less restrictive measures that enable Nio, Xpeng and Li Auto to continue operating at or near full-capacity would be helpful and could lead to a rebound in their share prices.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
