What happened
Nio (NIO 5.26%) stock plunged this week and had fallen 12.4% in five days as of 2 p.m. ET Friday, according to data provided by S&P Global Market Intelligence. There weren't many updates from Nio this week, but the few that there were could have driven shares of the electric vehicle (EV) manufacturer higher, if not for concerning news from China.
So what
Nio shares took a deep dive last week after the company said it had suspended operations in China to adhere to the COVID-19 lockdown rules. Just days earlier, Nio delayed the launch of its ES7 SUV by a month to May.
Unlike Tesla, whose Shanghai Gigafactory had been shut since March 28, Nio didn't have to shut down its plant for weeks. China-based website CnEvPost reported Nio restarted its Hefei plant within days of suspending operations as its supply chain improved. Tesla, for that matter, reopened its plant mid this week.
So why did Nio shares continue to fall? Fears of decelerating growth are making investors in the EV maker jittery.
Image source: Getty Images.
Although some manufacturing companies resumed operations in China, the pace is slow and the worst isn't over yet. On April 20, CnEvPost reported the China Passenger Car Association (CPCA) as stating that the coronavirus outbreak will continue to hurt the auto industry through at least the month of May.
Data from the CPCA also revealed passenger car sales in China plummeted 44% year over year over the first two weeks of April.
Companies like Nio, of course, cannot escape the brunt, and are facing a shortfall in production and deliveries. That's the last thing investors in an early growth company operating in a high-potential industry want to hear.
Now what
All's not lost for Nio, though, as there were also some notable positive developments this week. For example, companies resuming operations reflect China's efforts to ease its zero-COVID policy that has throttled economic growth so far.
China's industry regulator also took a major step this week when it said it'll crack down on the hoarding of key raw material for new energy vehicles (NEV) and boost their production in order to prevent any further rise in their prices. Surging prices of key material like lithium, nickel, and batteries have hit NEV makers hard and forced many to hike prices of their vehicles. Nio is expected to increase prices in May.
Meanwhile, Nio is sticking with its plans to launch new vehicles, start a factory, and expand internationally this year. From that standpoint, the drop in Nio shares this week makes little sense, and I'd even consider this an opportunity for long-term investors, given the growth opportunities ahead of Nio.
