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Why Nio Stock Is Down Today

By John Rosevear – Aug 19, 2021 at 11:54AM

Key Points

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China's crackdown on income inequality could be a problem for the EV company.

What happened

Shares of Chinese electric vehicle maker Nio (NIO -4.99%) were trading lower on Thursday, under pressure amid a sell-off of luxury goods makers on concerns that China may take new actions to limit personal income and redistribute wealth. 

As of 10:45 a.m. EDT, Nio's American depositary shares were down about 4.2% from Wednesday's closing price.

So what

Hermès International, LVMH Moët Hennessy, Gucci owner Kering, and Ferrari were among the big luxury names trading sharply lower on Thursday, after China's government signaled that a crackdown on income inequality is coming.

The goal was announced in a readout from an economic planning meeting attended by China's president, Xi Jinping, on Tuesday that was reported in Chinese state media on Thursday. It follows a series of steps by the government to rein in some of the country's fastest-growing online businesses, including ride-hailing giant DiDi Global, as part of Xi's broader campaign to reduce poverty in the world's most populous nation. 

What does that have to do with Nio? While it isn't playing in the same lofty market segments as Hermès or Ferrari, its products are priced and positioned as upscale vehicles and direct rivals to Tesla. If Chinese consumers are urged to avoid status symbol purchases, demand for the sleek high-tech vehicles built by Nio (and Tesla) could well soften.

A blue Nio ES8, an upscale electric SUV.

A government crackdown on high earners could limit demand for Nio's stylish electric vehicles. The Nio ES8 starts around $70,000 in China. Image source: Nio.

Right now, that's just a possibility. But it's a possibility that was almost certainly contributing to Nio's share price decline on Thursday. 

Now what

Electric vehicle investors have been relieved to see that Nio, as a high-tech industrial company, hasn't had to face the kinds of consequences doled out by China's government against DiDi and others. But restrictions on income and consumer spending could crimp the company's growth -- particularly if consumers feel the need to stick with simpler vehicles for a while. 

John Rosevear has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends NIO Inc. and Tesla. The Motley Fool recommends the following options: long December 2021 $130 calls on Ferrari. The Motley Fool has a disclosure policy.

Stocks Mentioned

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