What happened
In a display of nerve-wracking volatility, Nio (NIO 0.58%) stock lost a staggering 38.7% in value in the month of October but has already rebounded 14.7% since then, despite today's drop as of this writing, according to data provided by S&P Global Market Intelligence. October was, in fact, the harshest month for the electric vehicle (EV) stock so far in 2022, but much to investors' relief, Nio shares are swiftly bouncing back. What should investors make of this wild ride with Nio?
So what
Investors in Nio were already nervous after the EV maker's second-quarter numbers, released in September, attracted multiple analyst downgrades. Although Nio's second-quarter revenue grew 21% year over year, its vehicle and gross margins slumped on rising input costs. Consequently, the company posted a huge net loss for the second quarter that far exceeded consensus estimates.
Although Nio projected strong growth for the rest of the year, it failed to allay investors' fears as macroeconomic headwinds and fears of a recession deepened. Inflation in the U.S. continued to rise rapidly, and Nio's primary and largest market, China, found itself in the grip of fresh coronavirus cases that triggered another round of lockdowns. Nio suspended operations at two plants in Hefei, Anhui province, and a recent Bloomberg report has estimated Nio to have lost production worth 7,000 EVs and deliveries worth 5,000 EVs during the latest COVID-19 disruptions.
NYSE: NIO
Key Data Points
Hong Kong's Hang Seng stock index crashed to levels last seen in 2009 during the last week of October, and Nio stock continued to fall.
Now what
If Nio's production and deliveries are taking a hit just when the company was looking forward to some strong delivery months ahead, why is the stock higher this month? Nio's deliveries in October, in fact, slipped 7.5% since last month.
The thing is, Nio's plants in Hefei have already resumed production, according to local Chinese media. More importantly, China is reportedly weighing relaxing its zero-COVID policies, says The Wall Street Journal, which could remove a major overhang on Nio's stock if it happens. These positive developments have redirected investors' focus on Nio's upcoming third-quarter numbers and its potential growth in the coming months.
During its last quarterly earnings release, Nio projected record deliveries in every month of the fourth quarter on the back of its recent launches, including the ES7 SUV and the much-awaited ET5 sedan. All eyes will be on Nio's outlook when it reports Q3 numbers on November 10. If the EV maker can ramp up production and make up for the COVID-lockdown losses, it could be just the catalyst Nio stock needs to rally higher.
