Why NIO Stock was lower on Tuesday – fr

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Why NIO Stock was lower on Tuesday – fr


What happened

Shares of Chinese electric vehicle (EV) maker NIO (NYSE: NIO) have been on a downward trend recently. They are down 20% last month and almost 40% since the start of the year. Their fall continued on Tuesday as stocks fell more than 6% when the market opened and remained down around 4% as of 9:35 a.m. EDT.

So what

Growth stocks in general have recently been shunned by traders as the market moves towards cyclical and value stocks. And the EV sector is particularly hard hit, as many stock valuations have outpaced the growth of the underlying business. NIO was no exception. But Tuesday’s drop may have been exacerbated by news that sales of Tesla (NASDAQ: TSLA) Vehicles in China, which are manufactured at its Shanghai plant, fell 27% in April from March, according to the China Passenger Car Association. However, this is not necessarily a sign that Chinese consumer demand for electric vehicles is changing.

NIO ES6 electric SUV. Image source: NIO.

Now what

In the first quarter, NIO’s vehicle sales were up almost 500% from the previous year, and 20% from the fourth quarter of 2020. But like many automakers around the world, it was hit. by the global semiconductor shortage. Management says the scarcity of auto chips will hamper its ability to further ramp up production in the coming months.

If investors fear that Tesla’s decline in sales in China may reflect a problem with EV demand, it would make sense to shy away from stocks like NIO which will need strong business growth to justify their valuations. But Tesla has also increased its Shanghai plant’s exports to Europe, a market NIO has just announced it will enter this fall.

It should also be remembered that the electric vehicle market in China is only just beginning and the government in Beijing wants to reduce the country’s dependence on imported fuel, reduce air pollution and attract investment in the manufacturing sector. for a strong national auto industry. It’s fair to question NIO’s $ 50 billion valuation, but the lack of demand for electric vehicles in its domestic market shouldn’t be a real concern for investors.

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