What happened

Shares of Chinese electric-vehicle maker Nio (NIO -1.76%) opened modestly lower on Monday, after a senior official said that China's government will encourage consolidation in the country's EV industry. 

As of 10:30 a.m. EDT today, Nio's American depositary shares were down about 2.5% from Friday's closing price. 

So what

China has "too many" EV makers, China's minister of industry and information technology said on Monday, and the government will encourage the more successful companies to merge with or acquire smaller rivals. 

The minister, Xiao Yaqing, said that while China is very enthusiastic about the development of so-called new energy vehicles, the government believes that a further concentration of resources is needed to ensure that companies can successfully develop advanced technology. ("New energy vehicles" is a translation of a Chinese term that includes battery-electric vehicles, fuel cell electric vehicles, and plug-in hybrids.) 

NIO's California office building, with two of the company's SUVs.

Nio's California offices. The company may face pressure to acquire smaller, less-successful rivals as China urges its EV industry to consolidate. Image source: Nio.

The number of companies building (or attempting to build) new energy vehicles in China has boomed over the last few years, a result of generous government incentives. Now, though, the country has more production capacity than the market will support, and a growing percentage of the roughly 300 producers of new energy vehicles are falling into bankruptcy. 

Now what

I don't think that auto investors need to worry about Nio being acquired, at least not in the near term. But it's possible (maybe even likely) that it will come under some pressure to acquire smaller rivals to support the government's policy direction, which would divert capital from its own growth plan. That's probably why the stock was trading lower on Monday morning.