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Don’t Count out Nio Stock Due to Short-Term Headwinds

Jamie Johnson

Things haven’t been going too well for the “Tesla of China” in recent months. Nio (NASDAQ:NIO) has seen its stock price fall 53% since its IPO last year. The company did have a brief comeback in March when Nio stock rose as high as $10 per share. 

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Since then, its shares have been hovering around $3 as the company has dealt with several headwinds. Some of these issues are outside of the company’s control and aren’t specific to Nio alone. 

For instance, Tesla (NASDAQ:TSLA), Ford (NASDAQ:F), and General Motors (NASDAQ:GM) have all seen their stock prices fall as the trade war between the U.S. and China escalates. However, many of these issues are self-inflicted. 

Nio Deals With Unexpected Obstacles and Layoffs

Nio’s stock price first started to tank after the company released its fourth-quarter earnings report in March. In addition to the earnings report, the company announced it would halt its plans to build its factory in Shanghai.

Instead, Nio will continue to use its contract manufacturer, JAC Motors. JAC Motors made 12,775 ES8’s for Nio in 2018 and received a fee for every vehicle it manufactured. 

The company had already paid JAC Motors over $14 million by the time it went public last year. Nio hasn’t updated investors on whether the terms of that contract have been renegotiated or how much the company has paid its manufacturer since. 

Then in July, the automaker’s deliveries fell substantially, mostly due to its recall of nearly 5,000 battery packs from a fire risk. Nio was able to recall all of the batteries ahead of its projected timeline, but sales took a hit. Nio only delivered 837 vehicles in July, making it the company’s third-worst month in over a year.

The company had to also resort to several cost-cutting measures which included laying off over 70 employees at two different Silicon Valley offices. It’s worth pointing out that Nio does employ over 10,000 people worldwide, so the cuts weren’t massive. 

Regardless, contraction is never something you want to see in a company you’re investing in. And it’s not something you would expect to see in such a young startup. 

Nio Stock Has Big Potential Upside

Can Nio stock make a lasting comeback? I think so. 

Many of the challenges Nio is facing are temporary problems, but the long-term potential of the stock is strong. Wall Street is concerned about China right now but that doesn’t take away from the potential for the electric vehicle market there.

Bloomberg reported that China expects 60% of all vehicles sold in the country to be electric vehicles by 2035. The company wants to be the first to lead the world away from combustible engines. China already sells half of all electric cars worldwide, so the country could be well on its way to making this happen.

The company is only about a year out from its September IPO so it has time to work out some of these kinks. We’ll know more about the company’s short-term progress once Nio releases its next earnings report due Sept. 24. 

As of this writing, Jamie Johnson did not hold a position in any of the aforementioned stocks. 

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