Chinese electric vehicle (EV) company Nio (NYSE:NIO) said it will lay off 10% of its staff.
It is being done, the company said, due to rising competition.
The knee-jerk response from Wall Street to the announcement was positive. Nio jumped 4.5% on Nov. 2 and another 3.5% overnight. The shares opened this morning at $8.09, a market capitalization of over $8.4 billion.
But NIO stock is trading for barely half what it sold for in early August.
Nio Conservative
Nio acted just days after reporting strong October deliveries. The company delivered 16,074 vehicles, 60% more than it did a year earlier. Nio also has aggressive European expansion plans, featuring leases and fast battery swaps to maintain range.
But Nio is now the smallest of the three major Chinese EV makers trading in New York. Li Auto (NASDAQ:LI) has vastly outdistanced Nio with its plug-in hybrids. Even XPeng (NASDAQ:XPEV), which went into the year as the most troubled of the three, sold more cars than Nio during October.
Nio burst onto the scene five years ago as the “Tesla of China.” But it needed a government-directed bailout to get through the pandemic. In recent months, the company has sought to unwind those ties, buying back a factory from JAC Motors and diversifying its supply chain.
The problem is that Nio is losing roughly $35,000 on every car it makes. Cutting staff will help, but it won’t close the whole gap.
I recommended investors get out of Nio a year and a half ago when the stock was trading at $14.22.
NIO Layoffs: What Happens Next?
There are too many Chinese EV makers, and a shakeout is coming. Nio is unique with its battery-swaps, self-styled “Nio Houses,” selling a car-based lifestyle and luxury appointments.
But China is in an austere era. I don’t think Nio will survive in its present form. I don’t think a second bail-out is coming.
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.
