What happened

Just when it looked like Nio (NIO -0.58%) shares were on an upswing from multiyear lows, the stock of the Chinese electric-vehicle (EV) manufacturer took another plunge this week. Nio's American depositary shares sank by 14.3% in the shortened trading week, according to data provided by S&P Global Market Intelligence.

Shares surged higher by nearly 30% in the final half of March. But it and other technology stocks were out of favor this week, with the Nasdaq Composite index leading markets down for the week with a decline of more than 1%. Nio faced some of its own headwinds, though, which helps explain its outsize move lower. 

So what

Investors reacted with disappointment on Monday after Nio reported its March and first-quarter deliveries over the weekend. The company hit the low end of its estimate with quarterly shipments of 31,041 EVs. That was up more than 20% year over year, but down sequentially from the more than 40,000 vehicles delivered in the fourth quarter. 

Perhaps more significant for investors, though, is what is on the horizon when it comes to Nio's larger competitors. 

Now what

One immediate concern for Nio shareholders is the growth Tesla is experiencing in both China and Europe. The American automaker is gaining market share in China, and new data shows it is dominating in Norway, where Nio first entered the European market. 

Nio electric SUV on display.

Image source: Nio.

The China Passenger Car Association (CPCA) just reported that Tesla sold 88,869 China-made EVs in March, nearly a 20% increase from February. The report also showed that China-based BYD sold more than 200,000 EVs and hybrid vehicles, nearly doubling its volume year over year. Warren Buffet has been a longtime owner of BYD shares, and its growth in the EV and battery sectors is starting to show the reasons why. 

To add to the difficulty for Nio, more large automakers are now focusing on the Chinese EV market. Toyota plans to sell 1.5 million EVs globally by 2026, up from just the 24,000 it sold last year. It also plans to add two new EV models in China next year, according to a Wall Street Journal report. 

Nio should get back on track to grow its production as supply chain issues and other headwinds abate. But while the Chinese and European EV markets are large and growing, established competitors are going to make it difficult -- if not impossible -- for Nio to dominate any of its markets. Those fears helped spark this week's sell-off in the stock.