What happened

It's been a wild ride for investors in Nio (NIO 2.46%) so far this year. The electric vehicle (EV) stock gained a solid 23.8% in January, only to give up all of those gains and then some the next month -- it plunged by 22% in February, according to data provided by S&P Global Market Intelligence. That left the stock down 3.7% for the year.

So what

After delivering a record number of vehicles in December, Nio reported a sharp 46% sequential drop in deliveries in January. Although the Chinese New Year hurt deliveries for most automakers in that country, when it came to Nio, investors feared the worst -- decelerating growth ahead. Those fears were exacerbated when reports surfaced that Nio was offering hefty discounts on its cars. That appeared to be a reaction to rival Tesla's aggressive price cuts in China, which seem to have triggered a price war and portend a slowdown in China's EV industry.

Nio indeed did offer incentives to car buyers, but it wasn't only because of competition. Nio is transitioning all of its old models to a second-generation platform, NT 2.0, and therefore wanted to clear out its inventory of first-generation models as it phased them out. The incentives were part of its plan to move that older stock.

However, the transition, inventory provisions, and loss on purchase commitments hit Nio hard in the fourth quarter, pushing its vehicle and gross margins down into the single digits. Worse yet, Nio projected only 31,000 to 33,000 deliveries for the first quarter as it's still ramping up its production of the new models. While that represents 20% to 28% year-over-year growth, it'll be a significant drop in growth sequentially.

Fears of a broader slowdown combined with Nio's disappointing numbers and outlook to trigger selling in Nio stock both before and after its earnings report, even as multiple analysts cut their price targets on the EV stock. Analysts from Barclays and J.P. Morgan, for example, each slashed their price targets on Nio to $10 per share.

Now what

Nio has several launches lined up this year, and despite expecting a lackluster first quarter, management has predicted that its margins will climb back to double-digits by the end of the year. Nio also believes it can break even in 2024.

That sounds encouraging, but investors are keeping an eye on Nio's near-term growth for now, and that will depend largely on how quickly and efficiently the company can scale up production and roll out cars on its new platform. Any positive developments on that front should help Nio stock recover.