NIO stock fell more than 17% in August
So far, NIO (NIO) is having a rough ride in 2019. The company is also known as “China’s Tesla.” NIO stock has fallen 55% YTD (year-to-date) as of August 30. The stock fell 17.6% in August. Several issues have marred the stock’s prospects in 2019. Some of the issues impacting NIO have been self-inflicted, while others are due to changing macroeconomic realities and government policies.
NIO underperformed Chinese stocks and auto peers
China’s other major stocks including Baidu (BIDU), Tencent Holdings (TCEHY), and Alibaba (BABA) rose -6.5%, -11.2%, and 1.1%, respectively, in August and outperformed NIO. Interestingly, Tencent and Baidu invest in NIO.
NIO stock underperformed its global auto peers during August. Compared to NIO’s decline of 17.6%, Tesla (TSLA) has seen a decline of 6.6%. Tesla saw several developments in August including impressive progress on its China Gigafactory and respite from China on the purchase tax. Among legacy automakers, Ford (F) and General Motors (GM) have lost 3.8% and 8.1%, respectively, in August. Recession fears in general and China’s announcement about resuming tariffs on US autos on August 23 had a negative impact on these stocks.
Which developments impact NIO stock?
On March 5, NIO announced that it doesn’t plan to build its own factory to make its own cars. The news shocked analysts and the markets. NIO stock fell 32.6% in the two trading sessions following the news.
NIO’s deliveries fell after it beat the production and delivery targets in 2018. During the first quarter of 2019, the company delivered 3,989 units of its ES8 premium SUV. The company’s car deliveries fell 50.0% from 7,980 units in the fourth quarter of 2018. NIO’s second-quarter car deliveries saw a sequential decline of 10.9% to 3,553 car units.
NIO’s decelerating deliveries
The company’s July deliveries data came in at just 837 vehicles. Apart from China’s weaker macroeconomic and auto market conditions, NIO’s battery recall of 4,803 ES8s in July impacted its deliveries. The company had to recall the batteries following a few incidents of short circuits. NIO expects to make up for the delivery loss in July through accelerated deliveries. The company expects to deliver between 2,000 and 2,500 vehicles in August.
China’s policy shift on subsidies on NEVs impacted NIO
China eliminated subsidies for NEVs (new energy vehicles) with fewer than 250 kilometers of electric range on June 26. For higher ranges, the company halved the subsidies. The policy shift impacted Chinese EV makers in general and NIO in particular. China’s NEV sales fell for the first time in two years in July due to the change. The fall is in contrast to 63% YoY (year-over-year) growth in NEV sales last year.
In another setback, NIO’s co-founder, Jack Cheng, left the company. NIO’s spokesperson confirmed the news on August 15. According to The Verge, the spokesperson said that Cheng is retiring “due to his age.”
Could NIO stock make a comeback?
The market expects NIO to accelerate its deliveries in August to offset the shortfall in July. The company’s strong delivery data in August might act as a positive catalyst for the stock. However, for NIO stock to offset the year-to-date decline and rise, it will have to show continuous execution on deliveries and model rollouts. NIO will have to show that it can undercut the increasing competition and maintain margins for investors to grow more optimistic on the stock.