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Why Shares of Chinese Tesla Rival NIO Fell 17.4% in December

By John Rosevear – Updated Apr 14, 2019 at 10:05PM

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Two big factors threaten to throw a wrench into NIO's expansion plans -- and Tesla is one.

What happened

Shares of Chinese electric-vehicle maker NIO (NIO 6.85%) had a rough ride last month. According to data provided by S&P Global Market Intelligence, the price of NIO's U.S.-traded stock fell 17.4% in December. 

Part of the drop was almost certainly due to the larger marketwide sell-off we saw last month, when the benchmark S&P 500 dropped a bit more than 9%. But NIO's shares took a much bigger hit due to growing concerns about the health of China's new-car market -- and the possibility that Tesla (TSLA 2.48%) could be more competitive in the Middle Kingdom than previously expected.

NIO Chart

NIO data by YCharts.

So what

As December opened, it seemed like NIO was set for a good month. The company reported that sales and production of its first mass-market model, the ES8 SUV, had continued ramping up as expected in November, and that it was solidly on track to meet or beat its full-year sales and production goals. 

NIO shared more good news on Dec. 17, when it took the wraps off of its second model, the one-size-down ES6 SUV. On paper at least, the ES6 appears to offer solid performance and range at an attractive price -- a combination that should drive good sales when it begins shipping next June. 

A red NIO ES6, a sleek midsize electric luxury-sports SUV.

The all-new NIO ES6 is an upscale five-seat battery-electric SUV that will offer about 300 miles of range for around $65,000. Image source: NIO.

But external factors threw a couple of wrenches into NIO's plans in December. Most worrisome: After years of growth, China's new-car market has been slipping. While NIO did well in November, the overall market was down 16% -- a sign that consumer confidence could be sinking. 

There's another factor: Tesla. NIO has positioned itself as a more affordable, home-grown alternative to the Silicon Valley electric-vehicle powerhouse. The affordability argument has been key: Tariffs have made Teslas imported into China from the United States very expensive. But on Dec. 14, the Chinese government said that it will lower import tariffs on U.S.-made light vehicles to 15% from 40% -- putting imported Teslas within reach of more Chinese buyers. 

And even more will have a chance to buy soon, as Tesla is breaking ground on a factory in Shanghai that will make affordable versions of the compact Model 3 sedan and an upcoming Model 3-based SUV for Chinese buyers. Those could turn out to be very serious competition for upstart NIO. 

Now what

I expect NIO to report its December and full-year 2018 sales and production numbers soon, likely before the end of this week. Between that, and the company's upcoming fourth-quarter and full-year 2018 earnings report, we'll know much more about NIO's prospects in 2019.

Check out all our earnings call transcripts.

John Rosevear has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.

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