What happened
Some investors were dumping Nio's (NIO -5.00%) stock today after rival XPeng, another Chinese electric vehicle (EV) maker, reported its first-quarter financial results. XPeng's results were mostly good, but revenue could be hampered by COVID restrictions in the second quarter, which led to the company issuing lower-than-expected sales guidance for the quarter.
Nio investors are worried that if XPeng is continuing to feel the pinch from strict COVID regulations in China, then Nio will, too. As a result, the EV stock is down 6.5% as of 11:20 a.m. ET.
So what
Both Nio and XPeng are based in China, and the Chinese government has a strict "zero-COVID" policy that requires companies, production facilities, and even cities to shut down when coronavirus cases are detected.
Image source: Nio.
The policy has wreaked havoc on many areas of the Chinese economy and caused massive vehicle production headaches for Nio, XPeng, Tesla, and other companies making vehicles in the country.
XPeng said that it expects second-quarter sales to be about $1.1 billion, which fell just short of analysts' consensus estimate of $1.2 billion.
The difference between those two numbers seems like hardly enough for XPeng investors to worry about, let alone Nio investors, but the EV market is highly volatile right now.
Any indication that one EV company is struggling tends to have a negative effect on the broader electric vehicle market, hence Nio's share price drop today.
Now what
EV makers, in both China and the U.S., are having a rough time right now. Just today, the share price of U.S.-based Rivian Automotive is falling as the company prioritizes the production of certain vehicles over others, angering customers who were first in line for pre-orders.
All of this is adding up to EV investors growing increasingly concerned that this nascent market could experience growing pains for some time -- and their fears aren't unfounded.
While Nio and other electric vehicle stocks hold a lot of promise, coronavirus-induced production slowdowns, rising inflation, and a potential slowdown of the U.S. economy are likely to weigh on EV investments in the short term.
