A 6% price cut by Tesla (NASDAQ:TSLA) in China caused shares of Chinese rivals like Nio (NYSE:NIO) to sink overnight.
Nio fell 5.5% on Aug. 15 and by a similar percentage overnight. It opened this morning at $11.18 per share, its market capitalization near $20 billion. The other Chinese EV makers traded in New York, Xpeng (NASDAQ:XPEV) and Li Auto (NASDAQ:LI), were also down overnight, but by lesser amounts. Tesla was also down 2% overnight.
Nio Problems
Unlike its Chinese rivals, Nio has an active export plan for Europe. This includes the construction of battery swap stations, aiming to maintain an EV’s range as batteries degrade with use.
Tesla cut its prices by $1,900 in China and announced an insurance subsidy. CEO Elon Musk said in his earnings call further cuts may be coming.
The bargains will reduce Tesla’s margins, which are coming into line with the rest of the car industry. But they threaten to bankrupt smaller companies that can’t keep up.
Despite the pressure, Deutsche Bank recently raised its rating on Nio to “buy.” Analyst Edison Yu said Nio was becoming more efficient in both operations and sales. Nio is now rolling out solid-state batteries and a smartphone.
Nio’s prices are now nearly double those of Tesla. The EC7 Crossover now costs $70,000, and the ES8 SUV over $75,000.
This means Nio and Tesla are now in different categories. Tesla’s price is moving into the middle of the pack among cars, regardless of the power plant. Nio remains a luxury vehicle, betting on service and those battery swaps to maintain loyalty, especially in its home market.
NIO Stock: What Happens Next?
Investors seem more focused on the overall Chinese economy right now than on the machinations among its EV makers. Xi Jinping will do more to set the future course of Nio stock than Elon Musk.
As of this writing, Dana Blankenhorn did not hold (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.
