What happened
Shareholders of Nio (NIO 0.25%) had an eventful month in September. The stock jumped more than 20% in the first half of the month, but it has plunged since then. The final monthly return was a drop of 20.8%, according to data provided by S&P Global Market Intelligence. The many ongoing crosscurrents help to explain that volatility.
So what
The month started out on a pretty strong note when Nio released its August delivery results on Sept. 1. The company delivered 10,677 electric vehicles (EVs) in August, including almost 400 of its newest SUV model, the ES7. It followed up that news by telling investors sales of the ES7 soared to nearly 1,900 in September.
The new model is billed as a mid- to large-size SUV, and it comes with the company's latest Nio Autonomous Driving technology. It also is one of the first passenger vehicles in China designed with the towing capacity for campers or trailers. It's marketed as an electric adventure vehicle that would be attractive for outdoor enthusiasts. That wasn't the only new vehicle ramping up production in the month, either.
The Nio ES7 SUV. Image source: Nio.
The company also began delivering its second sedan model last month. The mid-size ET5 follows the larger ET7 sedan the company began producing earlier this year. But investors began to sour on the stock after its second-quarter financial results were reported on Sept. 7.
Now what
Like many global automakers, Nio is being hit by rising raw material costs. While total revenue grew nearly 22% year over year to over $1.5 billion, vehicle margins dropped both year over year and from the prior quarter. In the 2021 second quarter, vehicle margin was 20.3%. That was down to 18.1% in the first quarter of 2022 and continued to drop in the second quarter to 16.7%.
The company also increased its losses, and that's not what investors want to see in the current environment. In China, COVID-19 lockdowns have strangled the economy and helped push the government to take action to boost demand. Nio has also begun exporting its vehicles to Europe, but some investors think that market is heading for a recession.
Investors are shunning riskier assets in this period of global economic uncertainty, and Nio certainly qualifies as a risky stock. That sentiment is what drove shares sharply lower by the end of the month. Those with a longer-term outlook could find the decline a good opportunity. But that should only be for money that is available to put into more-speculative investments.
