What happened

Nio's (NIO -1.76%) American depositary shares plunged by as much as 6.6% Wednesday morning after the Chinese electric vehicle (EV) maker released its fourth-quarter earnings report. As of 10:35 a.m. ET, shares were still down by 5.5%.

So what

Nio reported a fourth-quarter loss of $0.51 per share on revenue of $2.3 billion. Wall Street analysts had been expecting a loss of $0.26 per share on sales of about $2.5 billion. But those figures weren't the only reason traders were selling the stock Wednesday. The morning's drop extends a month-long trend that has now seen the shares decline by more than 25%. 

Now what

Investors have been hoping the EV company would show it has recovered from a production and sales slowdown caused by COVID-19 restrictions in China. While it did show a big improvement in vehicle deliveries sequentially from January to February, the company disappointed investors with its outlook. 

Nio reported more than 12,000 vehicles shipped in February, which was nearly double what it sold in February 2021. More than 7,000 of those were the smart sedan models that Nio just launched last year.

navy blue Nio electric sedan on European street.

Image source: Nio.

But that's where the good news stopped. The company said it expects to deliver between 31,000 and 33,000 vehicles in the first quarter of 2023. That implies it will ship approximately 10,000 to 12,000 units in March, and the quarter's total will drop sharply from the more than 40,000 EVs it delivered in the fourth quarter. 

That will lead to a significant shortfall in revenue compared to what analysts had been expecting. The approximately $1.6 billion it expects in Q1 sales would only be an increase of about 13% compared to the year-ago quarter. The consensus forecast among analysts was for Q1 revenue of about $2.5 billion. 

Contrast that with the guidance competitor Li Auto issued Monday. Li guided for an increase in shipments in the first quarter to as many as 55,000 vehicles. That suggests that Nio is losing market share to its domestic rivals, a risk that is more of a concern to its investors than the macro issues that have been impacting the entire sector.