Nio stock price has dropped by almost 20% this year, underperforming other Chinese EV companies like Zeekr Intelligent, Li Auto, and XPeng. It was trading at $3.5 on Monday, down by over 94% from its highest point in 2021, erasing billions of dollars in value as its market cap has dropped from $84 billion to $6.7 billion.
Nio is growing, but facing challenges
Nio, a leading Chinese electric vehicle company, is growing but facing substantial challenges, which explains why its stock has slumped in the past few years.
The company’s growth is accelerating as demonstrated in the most recent results. These numbers showed that the company’s revenue rose to 12 billion RMB, a 21.5% increase from the same period last year.
Vehicle sales rose by 18.6% to RMB 9.9 billion during the quarter. This is a notable performance considering that a company like Tesla reported weak financial results.
Nio’s growth was mostly because of its flagship vehicle sales. This growth was complemented by its ONVO brand, which is targeted at the mass market.
The company anticipates that its business will continue growing in mainland China and other countries. It sees this growth being boosted by its ONVO brand and its recently launched Firefly brand.
Challenges remain
Nio, however, faces major challenges this year. First, there are signs that it is struggling to hit its manufacturing targets, especially for its ONVO brand, which was expected to hit 20,000 per month since March. However, the company is yet to hit the target.
The most recent results showed that ONVO’s deliveries stood at 6,281 vehicles, while Firefly deliveries were 3,680. Including the Nio’s main brand, the company delivered 23,231 vehicles in May. This weak performance explains why Nio’s revenue and profitability has struggled.
Second, Nio and other Chinese EV companies are reacting to the recent price cuts by its top competitors like BYD. BYD slashed prices of most of its brands by as much as 34%, with the Seagull mini hatchback costing $7,700.
Price cuts by companies like BYD will negatively impact Nio and other firms since they will have to adjust their prices. The crisis is so dire such that Wei Jianjun, the chairman of Great Wall Motor compared the industry to Evergande, the giant real estate company that collapsed a few years ago. He said:
“A certain automaker has taken the lead in launching significant price cuts and many companies have followed suit, triggering a new round of ‘price war’ panic.”
Nio is experiencing substantial losses this year. The most recent data showed that its adjusted loss jumped to RMB 6.7 billion, up by 30% from a year earlier.
This loss-making has made Nio highly dilutive as it has continued to raise money by selling shares. Nio raised HK 4 billion earlier this year by selling 136 million shares. This dilution has pushed its outstanding shares to 1,94 billion from 1.12 billion in 2020.
Read more: Nio stock analysis: is this Tesla rival a buy today?
Nio stock price analysis
The weekly chart showed that the Nio share price has remained in a tight range in the past few months. This explains why the Average True Range (ATR) has plunged. The ATR indicator is one of the most popular volatility indicators.
Similarly, the spread between the three lines of the Bollinger Bands has narrowed. The accumulation and distribution indicator has continued falling this year.
Therefore, the stock will likely remain in this range this year and then go through a short squeeze. If this happens, the next point to watch will be at $5.
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