The electric vehicle industry in China is in the midst of a bit of turmoil, and that has been reflected in the performance of the NIO stock over the past two weeks or so.
NIO Inc (NYSE:NIO), the Chinese electric vehicle manufacturer, announced its earnings for Q1 2019 on May 28 and perhaps the biggest takeaway was that the company had lost a staggering $395.23 million in the period.
Fall in Revenue
Revenues for the period stood at $243.1 million, while the loss per share came in at $0.38, and more importantly, both those figures beat analysts’ estimates for those metrics. However, that couldn’t stop NIO stock from going on a freefall, and in the days following the earnings announcement, NIO went down by as much as 37%.
NIO’s current troubles are entirely due to the massive drop in sales, and from December to January, sales of its flagship model ES8 fell drastically.
However, there is also a much simpler explanation behind the massive drop in sales. The electric vehicle industry in China had previously been propped up by the generous subsidies for buyers that had been put in place by the Chinese government. Once those subsidies were cut down, though, NIO sales plummeted.
>> Penny Stocks: Orion Energy Systems is Surging with Further to Climb
The Chief Financial Officer of NIO, Louis Hsieh, has stated that he expects a much bigger decline in sales and demand during the course of the second quarter. He believes that weak demand and rising competition in the industry will have a telling effect on the company’s second quarter performance.
NIO stock is trading higher by 2.505 to $2.49 on Monday.
Key Takeaways
Although it seems that Wall Street has completely cooled off on the promise of NIO on the back of disappointing sales, there are some reasons for optimism all the same. The company is going to launch its new electric SUV later on this year and production is expected to be ramped up by around the third quarter.
That being said, the fact that Tesla has opened up its own factory in China is a clear indication that the competition is only going to intensify for NIO in the coming days.
NIO stock has tumbled about 60% so far in 2019 and 75% from its March peak price of $10.50.
Featured image: DepositPhotos © tomwang
