Insights

Why Have Investors Been Selling Nio Stock Since April?

What happened
Investors in Nio (NYSE: NIO) are having countless sleepless nights. After crashing 20.7% in April, according to data provided by S&P Global Market Intelligence, the electric vehicle (EV) stock is sinking even lower and is already down about 18.3% this month, as of this writing.
So what
The way Nio kicked off April, you wouldn’t have expected the stock to fare so badly. Nio’s March deliveries shot up 37.5% year over year and 63% sequentially, and the company began delivering its flagship sedan, ET7, in March. Nio, in fact, delivered a record number of vehicles totaling 25,768 units in the first quarter.
As the month progressed, though, multiple challenges started to crop up. For starters, Nio suspended production after several of its suppliers had to shut down operations as China imposed strict lockdowns to stop the spread of the coronavirus. Nio also hinted at plans to increase prices of its vehicles and its battery-as-a-service (BaaS) program from May 10, as reported by China-based new energy vehicle-focused website, CnEVPost. Barely days ago, however, Nio’s CEO William Li ruled out any plans to increase prices.
Image source: Getty Images.

To be fair, Nio wasn’t the only company to suspend operations in China or contemplate price increases to offset surging raw material prices. Just about four days after Nio suspended production, Nomura analyst Martin Heung revealed that Nio was still running its plant during weekdays, according to TheFly.com. Based on his talks with Nio management, Heung also said the company was on track to start production at its second factory in the third quarter as planned.
Heung’s updates dispelled investors’ fears but only momentarily as investors kept a close watch on updates from China. Lockdowns were spreading, and data from China’s auto association revealed a sharp dip in auto sales for the first half of April. With the association also projecting the weakness to last at least through May, investors knew Nio’s macroenvironment will remain challenging.
Nio’s numbers for the month of April confirmed those fears: Nio’s April deliveries slumped 49% sequentially and 29% year over year. That’s just one of the several reasons why Nio shares are sinking even further in May.
Now what
May is turning out to be a brutal month for Nio. Disappointing April sales numbers, a delisting threat in the U.S., and the market sell-off are hammering Nio shares.
The volatility can be unnerving, but there’s only so much Nio can do about these challenges. The U.S. Securities & Exchange Commission (SEC) law that requires foreign companies to allow inspection of their audit reports by U.S. regulators for three years or be delisted is affecting nearly every Chinese stock. As for production, Nio has the capacity, but lockdowns, rising input costs amid the Russia-Ukraine war, and supply chain constraints are real hurdles.
Nio is already seeking a secondary listing of its shares in Singapore after listing its stock in Hong Kong to provide U.S. investors with alternative trading avenues. Yet no shareholder would want to see their stock get delisted, and the very prospect has triggered panic selling in Nio.

 Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nio Inc. The Motley Fool has a disclosure policy. –

What happened

Investors in Nio (NYSE: NIO) are having countless sleepless nights. After crashing 20.7% in April, according to data provided by S&P Global Market Intelligence, the electric vehicle (EV) stock is sinking even lower and is already down about 18.3% this month, as of this writing.

So what

The way Nio kicked off April, you wouldn’t have expected the stock to fare so badly. Nio’s March deliveries shot up 37.5% year over year and 63% sequentially, and the company began delivering its flagship sedan, ET7, in March. Nio, in fact, delivered a record number of vehicles totaling 25,768 units in the first quarter.

As the month progressed, though, multiple challenges started to crop up. For starters, Nio suspended production after several of its suppliers had to shut down operations as China imposed strict lockdowns to stop the spread of the coronavirus. Nio also hinted at plans to increase prices of its vehicles and its battery-as-a-service (BaaS) program from May 10, as reported by China-based new energy vehicle-focused website, CnEVPost. Barely days ago, however, Nio’s CEO William Li ruled out any plans to increase prices.

Image source: Getty Images.

To be fair, Nio wasn’t the only company to suspend operations in China or contemplate price increases to offset surging raw material prices. Just about four days after Nio suspended production, Nomura analyst Martin Heung revealed that Nio was still running its plant during weekdays, according to TheFly.com. Based on his talks with Nio management, Heung also said the company was on track to start production at its second factory in the third quarter as planned.

Heung’s updates dispelled investors’ fears but only momentarily as investors kept a close watch on updates from China. Lockdowns were spreading, and data from China’s auto association revealed a sharp dip in auto sales for the first half of April. With the association also projecting the weakness to last at least through May, investors knew Nio’s macroenvironment will remain challenging.

Nio’s numbers for the month of April confirmed those fears: Nio’s April deliveries slumped 49% sequentially and 29% year over year. That’s just one of the several reasons why Nio shares are sinking even further in May.

Now what

May is turning out to be a brutal month for Nio. Disappointing April sales numbers, a delisting threat in the U.S., and the market sell-off are hammering Nio shares.

The volatility can be unnerving, but there’s only so much Nio can do about these challenges. The U.S. Securities & Exchange Commission (SEC) law that requires foreign companies to allow inspection of their audit reports by U.S. regulators for three years or be delisted is affecting nearly every Chinese stock. As for production, Nio has the capacity, but lockdowns, rising input costs amid the Russia-Ukraine war, and supply chain constraints are real hurdles.

Nio is already seeking a secondary listing of its shares in Singapore after listing its stock in Hong Kong to provide U.S. investors with alternative trading avenues. Yet no shareholder would want to see their stock get delisted, and the very prospect has triggered panic selling in Nio.

 

Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nio Inc. The Motley Fool has a disclosure policy.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

  • This field is for validation purposes and should be left unchanged.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;


To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.


An active and funded account with a positive trading balance is required to continue to have access to the tools;


Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;


Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US & HK* Trades. Click Here!