Chinese electric-vehicle maker NIO (NYSE:NIO) said that it delivered just 837 vehicles to customers in July while it devoted resources to repairing several thousand vehicles that had been recalled for battery-pack defects.
The news didn't help NIO's battered shares, which have lost more than half their value since the beginning of 2019. But despite an ongoing slump in the Chinese new-car market, the company said that it expects the pace of deliveries to pick up significantly in August.
Why NIO's stock has struggled in 2019
NIO's shares had a promising start after the company's initial public offering on Sept. 12 of last year, rising more than 20% by the end of November. Since then, things have taken a more difficult turn.
- NIO's well-regarded U.S. chief, Padmasree Warrior, left the company in December. Several other senior leaders have followed.
- The Chinese new-car market continued a slump that began last year. Through July, sales of new light vehicles were down 11% from the same period in 2018.
- Sales of electrified vehicles in China had held up fairly well through the first half of the year, but that changed after a reduction in government subsidies for buyers of electrified vehicles took effect on June 25. Sales of electric vehicles and plug-in hybrids fell a combined 4.7% in July, according to the China Association of Automobile Manufacturers.
- A recall of almost 5,000 ES8 SUVs for defective battery packs raised concerns about NIO's build quality.
- Competition is coming. Last year, many analysts thought that NIO might become a home-grown rival to Tesla (NASDAQ:TSLA) in the Chinese market. But Tesla is in the process of building its own factory in Shanghai now. It may soon be able to offer its Model 3 sedan to Chinese buyers at significantly lower prices than it charges for the imported vehicles it currently sells.
As you can see, NIO's deliveries have slumped since the end of 2018. The company's much-anticipated second model, the ES6 SUV, is helping -- but not enough, at least not yet.
With sales down so much, it's not surprising that the stock has lost more than half of its value since the beginning of the year.
Where does NIO go from here?
It's hard to say. On the one hand, the Chinese new-car market is in tough shape right now, and as a still-new company, NIO is at a disadvantage with wary consumers. On the other hand, the new ES6 SUV -- which is smaller and less expensive than NIO's larger ES8 but offers better range -- just began shipping and could get traction over the next few months.
In a statement, CEO William Li said that NIO completed the battery recall ahead of schedule and can now accelerate deliveries to make up for the slump in July. He said that NIO is aiming to deliver between 2,000 and 2,500 vehicles in August.
In the near term, it boils down to this: If NIO can hit that delivery target, it might be able to tempt wary investors to buy its stock. If it misses, things may get even rougher from here.