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Why Nio Stock Fell Today

Nio stock (NYSE:NIO)

NIO plummeted on Thursday morning, falling 6.5% as of 11:25 a.m. ET. The Chinese electric vehicle (EV) manufacturer is beefing up its battery-swapping capabilities and even establishing a battery manufacturing business. Nonetheless, the overhang from China, Nio’s largest and domestic market, is weighing on its shares.

So, What’s the Deal?

Investors in Chinese stocks are already fleeing after Chinese President Xi Jinping was re-elected for a third term earlier this week, fearing that Xi’s ideologies, particularly his crackdown on the private sector and zero-COVID policy, will continue. Both moves, among other things, have stifled the country’s growth.

The most recent data from China revealed a sharp year-over-year drop in industrial company profits for the first nine months of 2022, primarily due to COVID-19 restrictions. Investors dumped Nio shares in fear with reports of a new coronavirus outbreak and additional lockdowns in major Chinese cities such as Wuhan and Guangzhou this morning.

COVID-19 lockdowns hammered Chinese EV manufacturers earlier this year, forcing nearly all of them to halt operations for several weeks. This impacted vehicle deliveries and sales for the majority of Chinese EV manufacturers, including Nio stock (NYSE:NIO). Investors now fear a repeat in the coming weeks and months as Xi maintains his zero-tolerance COVID-19 policy.

So, What Now?

NIO Investors’ concerns are not entirely unfounded, as additional lockdowns, particularly in China’s industrial regions, could harm manufacturing activity at a time when fears of a slowdown already loom large as the country battles a property crisis.

Nio relies heavily on China for sales, and macroeconomic headwinds could derail the company’s expansion plans. Nio expects record deliveries in every month of the fourth quarter, driven by recent launches, after delivering a record number of vehicles in the quarter ending September (up 29% year over year).

This week, the EV manufacturer also established a battery subsidiary, indicating its move into battery manufacturing. Meanwhile, beginning October 28, Nio owners will be able to swap their battery packs to a different capacity daily, as opposed to their current monthly or annual plans. For a lower price, customers can buy cars without batteries and then subscribe to its battery-as-a-service (BaaS) plan to swap and upgrade batteries. BaaS provides the company with a significant competitive advantage.

Sounds good, but Nio investors are currently focused on macroeconomic challenges rather than growth prospects.

Featured Image-  Megapixl @ Michaelvi

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