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Why NIO Stock Slid on Friday Morning

By John Rosevear – Jul 24, 2020 at 11:16AM

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Electric-car stocks had a rough ride after Tesla was downgraded.

What happened

Shares of Chinese electric-vehicle maker NIO (NIO -0.09%) were trading lower on Friday morning, after an analyst downgrade of rival Tesla (TSLA 1.05%) triggered an early sell-off of electric-car stocks. 

As of 10:30 a.m. EDT, NIO's American depositary shares were down about 5.2% from Thursday's closing price.

So what

Friday's sell-off wasn't triggered by bad news around NIO. In fact, there was some good news: NIO's CEO, William Bin Li, confirmed in an interview with Chinese new-business publication Cailienshe that NIO's loss narrowed in the second quarter and its gross profit margin turned positive, following a stronger-than-expected sales result. 

That wasn't a huge surprise, given the good sales result and other hints we've had from the company ahead of its earnings report next month. It's the kind of report that would have nudged the stock higher on a typical day. 

A white NIO ET7 prototype, a sleek upscale electric sedan.

NIO's next new model will be the ET7 sports sedan. Deliveries are expected to begin early next year. Image source: NIO.

But NIO's stock was caught in a broader wave on Friday morning, as investors sold off shares of NIO, Tesla, and other electric-vehicle makers following a post-earnings Tesla downgrade and growing concerns about the fraying of U.S.-China relations.

Now what

NIO's shares have enjoyed a terrific run over the last couple of months; recent setbacks are likely nothing more than a correction. The company is arguably in better shape than ever, with rising sales, cash in the bank, and a new factory in the works.

Auto investors will have a chance to hear more from NIO's leadership team when the company reports its second-quarter earnings result next month.

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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