American depositary shares of Chinese electric vehicle (EV) maker Nio (NIO 8.72%) plunged as much as 7% Wednesday morning after the company lowered first-quarter delivery estimates.
Nio had previously told investors it expected to ship as many as 33,000 vehicles in the quarterly period. Now it sees only about 30,000 units to be delivered. That news added to the pessimism investors have already felt regarding Nio's prospects. Nio shares are now down about 50% just this year.
Is the electric vehicle market already saturated?
China is the world's largest EV market. Even as Nio expands into Europe, it is relying on its home market to continue growing quickly. Last year, almost 9 million battery-electric vehicles were sold in China, the U.S. and Europe combined. More than two-thirds of those were in China. But the rate of growth has been slowing and automakers are slashing prices to try to continue supporting growth.
With many early adopters already having purchased vehicles, a slowdown in growth has been evident in 2024. Nio's monthly unit volume sales have dropped noticeably since peaking last July.
Data source: Nio. Chart by author.
Investors need to decide whether they believe the slowing growth trend is just temporary, or whether a long-term pivot to electrify transportation is coming. Citigroup analyst Jeff Chung still sees about 27% of new car sales in China being all-electric in 2024. In the U.S. penetration is much lower so far, with only about 8% of car sales being fully electric.
For those who believe the runway for adoption remains long, investing in Nio and other EV makers could make sense. But the risk of being wrong should also play a role in how much you want to risk in a still-evolving new market.
