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Why Nio Stock Crashed in December and Continues to Fall

By Neha Chamaria – Jan 7, 2022 at 8:59AM

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Nio announced a lot of exciting things in December, but investors are focused on macro concerns.

What happened

Hot electric vehicle (EV) stock Nio (NIO 6.41%) lost steam in December and tumbled 19% during the month, according to data provided by S&P Global Market Intelligence. Nio put a major investor concern to rest the very first day of December and then went on to host an impressive annual day event that gave investors in the EV stock much to look forward to.

The stock, though, failed to sustain momentum as investors tried to gauge the potential impact of macroeconomic concerns and ever-rising competition in Nio's home market on the EV maker's prospects. Here's all you need to know.

So what

Nio dropped a bomb in November when it reported a 27.5% drop in vehicle deliveries for the month of October at a time when rivals saw their sales surge. Although Nio primarily blamed the upgrade of its manufacturing lines ahead of new product launches for lower production, the market became wary and started speculating about Nio failing to navigate supply constraints.

On Dec. 1, 2021, Nio proved naysayers wrong by reporting a 105.6% rise in its November deliveries. Roughly a week later, Nio struck a partnership with one of the world's largest car leasing companies, LeasePlan, to offer its SUV ES8 in Norway. Around the same time, Nio confirmed it would host Nio Day on Dec. 18.

Nio's newly launched midsize sedan, ET5.

Image source: Nio.

Nio didn't disappoint. At its annual day event, Nio unveiled a mid-size electric sedan ET5 with deliveries scheduled to start in September 2022, announced Jan. 20 as the order confirmation date and March 28 as delivery date for its flagship sedan ET7, and revealed plans to enter at least three new European markets in 2022. Nio also said it expects to expand its footprint to more than 25 countries and regions by 2025.

Those big announcements should've ideally sent Nio shares soaring, but that didn't happen, for multiple reasons. To begin, growth stocks got hammered in December, and so did Chinese stocks. Nio fit into both categories. While lofty valuations and the emergence of the new coronavirus omicron variant hit growth stocks, Chinese companies came under increased scrutiny after the U.S. Securities and Exchange Commission mounted pressure on foreign stocks to submit accounts for audit or get ready to be delisted from the U.S. stock exchanges.

Nio's woes didn't end there. As 2021 drew to a close, China's Ministry of Finance announced it would cut subsidies on new energy vehicles (NEV) by 30% starting Jan. 1, 2022, and scrap them altogether from 2023 onward. That's one reason why Nio shares have dropped another 7.7% in 2022 so far, as of the time of this writing.

The thing is, government subsidies were one of the biggest advantages for EV manufacturers in China against foreign companies. As it is, sales at Nio's rival Tesla are booming, with the EV leader even increasing prices of the two models it sells in China, the Model Y and Model 3, twice between November and December.

Now what

Nio shares have continued to be under pressure this month so far, but investors should focus on what lies ahead for the EV maker. There's a lot happening right now within Nio and the EV industry. Sales of new energy vehicles in China are exploding, Nio is reportedly about to strike a partnership with China's largest NEV seller BYD, and it is rumored to enter the U.S. markets soon. If orders for Nio's ET5 take off as expected and the company can deliver on its expansion plans, 2022 could be a pivotal year for the EV stock.

Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool owns and recommends BYD, NIO Inc., and Tesla. The Motley Fool has a disclosure policy.

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