What happened
Nio (NIO) investors are trying to balance new catalysts for the Chinese electric-vehicle (EV) maker with a short-term issue that has Nio's production on hold. That dichotomy had Nio's American depositary shares jumping as much as 3% in early trading Tuesday, before reversing course. As of 1:04 p.m. ET, shares had retreated and were down 0.6% from Monday's closing price.
So what
Nio started deliveries of its newest offering -- and first sedan model -- late last month. The ET7 is a luxury sedan that will compete with Tesla's (TSLA 5.34%) Model S, which it makes in the U.S. company's Shanghai factory. Even after Tesla had announced a price increase for its China-made vehicles, Nio held firm on its pricing. But now, Nio is being hit with two items of bad news.
Nio increased prices of its ES6 and other SUV models to combat rising raw material costs. Image source: Nio.
The company joined Tesla and other Chinese EV makers announcing a price increase for its SUV models -- though it held its pricing for the new ET7 and the mid-size ET5 sedan that it will begin shipping later this year. Additionally, Nio now has had to suspend production due to a shortage of parts that come from other areas in China that are currently locked down to stem a growing spread of COVID-19.
Now what
The lockdowns in China will pass, but the impacts on this quarter will be noticeable, and the stock is dropping partially due to this short-term issue. Nio plans to expand beyond Norway into other countries in Europe this year, and a reduction in production volume won't help that expansion.
Investors should expect more volatility in the stock until the production-delay situation is resolved. But longer term, investors should be watching how the increase in vehicle prices may or may not impact demand.
