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March 2019 Is Shaping Up to Be Worst Month for NIO

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NIO stock

Popular Chinese electric carmaker NIO (NIO) stock faced a massive sell-off in March 2019. Last week, the stock traded on a negative note for the third straight week. It lost 1.6% in the week ended March 22. On a month-to-date basis, NIO stock has tanked by 44.1% as of March 25, whereas on a year-to-date basis, it has gone down by 16.0%.

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Key negative factors

In the fourth quarter of 2018, NIO reported an improvement in its adjusted net loss per share to about 3.20 Chinese yuan or $0.47 as compared to 10.35 yuan in the third quarter of 2018 and 71.47 yuan in the fourth quarter of 2017. The company released its fourth-quarter earnings results on March 5, and its stock tanked by 20.9% on March 6.

In its fourth-quarter earnings report, the company mentioned that it is canceling plans to construct its own car manufacturing plant in Shanghai. After the cancellation, NIO plans to continue to outsource its car manufacturing to JAC Motors, which fueled investors’ skepticism about the credibility of NIO’s plans.

During its fourth-quarter earnings conference call, NIO’s management also suggested that based on initial orders, ES6 has received an underwhelming response as compared to its previous car model ES8.

Key technical levels

As of March 25, NIO stock was trading at $5.35. The stock posted its an all-time high of $13.80 on September 14, two days after it started trading on NYSE on September 12. Since then it has lost 61.2%. On NIO’s hourly stock price chart, the 14-day relative strength index indicator was within the oversold territory at 24.5, reflecting severe weakness in the price momentum. On the upside, any near-term recovery in the stock could face immediate resistance near $5.90 in the coming sessions.

In March so far, Tencent Holdings (TCEHY) and Baidu (BIDU), Chinese companies (MCHI) that also have invested in NIO, have gone up by 5.1% and 2.7%, respectively, in March so far. In contrast, NIO’s American competitor Tesla (TSLA) has fallen 18.6% month-to-date.

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