Shares of NIO (NYSE:NIO), a leading manufacturer in China's premium electric vehicle market, declined nearly 14% Thursday morning as investors and analysts continued to digest the company's recently ended first quarter.
One factor that could be driving the stock lower is a recent downgrade from Bank of America Merrill Lynch analyst Ming Hsun Lee. Lee downgraded NIO from neutral to underperform and also moved the stock's price target from $6.20 to $3.00. Investors initially sent shares of NIO higher after its earnings report on Tuesday, and then the stock promptly gave the gains back Wednesday and Thursday as investors digested a 54% vehicle sales drop during the first quarter. Management also acknowledged it was delaying the release of its new ET7 electric sedan, and that sales over the next few months would likely be soft with electric vehicle subsidy cuts hurting demand.
With near-term sales headwinds and Tesla's increased presence thanks to its Shanghai factory, long-term investors are going to have to look at double-digit swings in NIO's stock price in the proper context. While a 54% decline in sales during the first quarter isn't positive, the company will be fine over the long term, as the Chinese government has made it clear it wants a massive number of electric vehicle sales: Currently the lofty goal is roughly 20% of the country's total car sales by 2025. China is already the world's largest electric vehicle market, and sales jumped 62% in 2018. The impact from reduced electric vehicle subsidies will fade, and sales will surge over the next decade, meaning NIO is still well positioned to thrive even if the near term looks a bit bumpy.