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Why Nio Stock Dropped in August

By Howard Smith – Sep 3, 2021 at 11:39AM

Key Points

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A stock priced with little room for error is going to react when growth hits a speed bump.

What happened

China is the largest automotive market in the world, and investors have been following growing electric vehicle makers there, like Nio (NIO 8.60%), giving it a market capitalization of more than $60 billion even with the company yet to reach profitability. So it is not surprising that the stock has been volatile. In August, that volatility led Nio shares to drop 12%, according to data provided by S&P Global Market Intelligence.

So what

Automakers globally have been battling supply chain issues, and they have begun to affect Nio as well. As far back as March 2021, Nio adjusted its production schedules to deal with the shortage in semiconductors. But it was able to make up for those earlier disruptions.

Nio ES8 electric SUVs being loaded on a ship for delivery to Norway.

Nio ES8 electric SUVs being loaded onto a ship for delivery to Norway. Image source: Nio.

As that and other supply chain constraints continue, however, the issue is beginning to hurt Nio's growth rate. August deliveries, for example, were about 25% below what the company reported in July. That was still almost a 50% year-over-year increase, but that is much slower growth than the company had been experiencing. But if Nio can navigate the current headwinds, it has several growth avenues that may prompt investors to reverse the August stock decline. 

Now what

Once Nio gets past the near-term speed bumps, it will be in a position to resume fast growth. It recently extended an agreement with its manufacturing partner through 2024 that will effectively double its production capacity. It also just shipped its first export load of its flagship ES8 electric SUVs to Norway. The company plans to expand sales to other European countries as well. 

But for now, investors aren't giving it the benefit of the doubt -- nor should they. Nio has a long way to go to grow into its current valuation. Holders of the stock should know it's a long-term, still-speculative investment. And that means there will likely be more volatility to come. 

Howard Smith owns shares of NIO Inc. The Motley Fool owns shares of and recommends NIO Inc. The Motley Fool has a disclosure policy.

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