What happened

Nio (NIO 0.38%) stock crashed Thursday morning, sinking 6.5% lower as of 11:25 a.m. ET. The Chinese electric vehicle (EV) manufacturer is upping up its battery swap game and even setting up a battery manufacturing business. Yet the overhang from China -- also Nio's largest and domestic market -- is weighing on its shares.

So what

Investors in Chinese stocks are already scurrying for cover after Chinese leader Xi Jinping secured a third term earlier this week, as they fear Xi's ideologies, particularly his crackdowns on the private sector and zero-COVID policy, to continue. Both moves, among other things, have helped to stifle growth in the nation.

Just this morning, the latest data from China revealed a sharp year-over-year drop in profits of industrial companies for the first nine months of 2022, primarily because of COVID-19 restrictions. With news of a fresh coronavirus outbreak and more lockdowns in major cities like Wuhan and Guangzhou also pouring in from China this morning, investors dumped shares in Nio in fear.

COVID-19 lockdowns hit Chinese EV makers hard earlier this year, with nearly every one forced to suspend operations for several weeks. That hit vehicle deliveries and sales for most Chinese EV makers, including Nio. Investors now fear a rerun in the coming weeks and months as Xi continues to enforce his zero-tolerance COVID-19 policy.

Now what

Investors' fears aren't entirely unwarranted as further lockdowns, especially in the industrial regions of China, could hurt manufacturing activity at a time when fears of a slowdown already loom large as the nation battles a property crisis.

Nio banks largely on China for sales, and macro headwinds could throw the company's growth plans out of gear. After delivering a record number of vehicles in the quarter ending September -- up 29%  year over year -- Nio expects record deliveries in every month of the fourth quarter driven by recent launches.

The EV maker also set up a battery subsidiary this week, indicating its move into battery manufacturing. Meanwhile, starting Oct. 28, Nio owners will have greater flexibility to swap their battery packs to a different capacity on a daily basis versus their current monthly or annual plans. Its customers have an option to buy cars without batteries at a lower cost and subscribe to its battery-as-a-service (BaaS) plan to swap and upgrade batteries. BaaS is a major competitive advantage for the company.

Sounds good, but investors in Nio are paying greater attention to macroeconomic challenges than its growth prospects right now.