Insights

Why Nio Shares Dropped Early Today

What happened

Shares of Chinese electric-vehicle (EV) maker Nio (NYSE: NIO) dropped nearly 5% in early trading today. They have since recovered, but the concern that caused the decline remains. As of 1:45 p.m. ET, Nio shares had reversed course and gained 1.5%.

So what

The drop didn’t hold, but there’s still news that may portend problems ahead for the company. Nio was forced to limit production in the second quarter due to pandemic-induced lockdowns in some Chinese cities. Shutdowns in Beijing and Shanghai disrupted Nio’s supply chain.

The company only delivered 12,098 vehicles in April and May combined, due to those production delays. As those issues eased, however, the company recovered and reported more than 12,900 deliveries in June alone.

But Barron’s reported over the weekend that COVID-19 cases are again surging, but this time, in Anhui Province. Nio has its manufacturing plants in Hefei, the capital of Anhui Province.

Now what

China has a strict “zero COVID” policy, and if cases indeed are growing in Hefei, it wouldn’t be a stretch to think that a lockdown is imminent. If that occurs, Nio would most likely have to suspend its operations. The report said that hundreds of new cases have emerged in Anhui Province. 

Authorities have already locked down two counties in the province, several hours away from Hefei, according to Bloomberg. No one knows how cases might progress or whether Hefei will be under lockdown. Long-term investors shouldn’t react to short-term news, but if the new wave of cases does impact Nio’s production, there could be more poor production reports ahead.

Howard Smith has positions in Nio Inc. The Motley Fool has positions in and recommends Nio Inc. The Motley Fool has a disclosure policy.

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