In the electric vehicle (EV) world, Nio (NYSE:NIO) has long been considered one of the best hyper-growth ways to play this emerging space. Unfortunately, NIO stock has been on a rough ride in recent years and has fallen more than 50% from its mid-year high thus far on weakening sentiment in this sector.
Today, NIO stock has declined another 3% in early afternoon trading on reports the company is considering cutting more of its workforce. Notably, these reductions are expected to come after the company already cut 10% of its employee base just last month.
Exactly which business segments will be affected by this new round of layoffs is unclear. However, a Bloomberg report suggested that certain departments have been “asked to prepare reserve lay-off lists, which may widen the original dismissals to 20% to 30% within the unit.”
Let’s dive into this announcement and what investors should make of the news.
NIO Stock Sinks on Additional Layoff Chatter
Over the past year, most layoff announcements have been met with a surprisingly bullish perspective from the market. Job cuts coincide with cost cuts, and greater efficiency typically brings greater profits for investors. For companies that are bleeding cash, slowing that cash burn can be a great thing. In many respects, it appears that’s what Nio is attempting to do right now.
However, for a high-growth company like Nio, cutting jobs can hurt growth. Many investors are in this stock not for the next year or two but for a longer time horizon. If Nio cedes more market share to incumbents, it may hinder the company’s ability to build its global brand.
Now, the company’s operations are focused in China, so there could be some demand-related impacts driving these moves. Less demand for EVs (or those on the higher end of the performance and price range, such as Nio’s) could mean lower-cost producers eat up more market share. This news appears to support such a bearish thesis on the higher-end EV market, with investors clearly shifting toward other industry leaders 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. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.