Why is NIO’s share price falling?

Between mid-May and the end of June, shares in Chinese electric vehicle (EV) manufacturer NIO (NYSE: NIO) were flying. In the space of about six weeks, the stock climbed from $33 to $55 – a gain of about 67%.

Recently, however, NIO has lost momentum. This month, the stock has fallen back to $43. So, what’s going on with NIO stock? Why’s the share price falling?

Why is NIO stock down?

NIO’s recent share price weakness appears to be related to regulatory uncertainty. It seems a regulatory investigation into China ride-hailing giant Didi – which recently listed on the New York Stock Exchange – has spooked investors.

Chinese regulators are currently in the process of cracking down on dominant domestic technology companies. Shortly after Didi went public, China’s cybersecurity regulator, the Cyberspace Administration of China (CAC), announced an investigation into the company. The reason? To “guard against risks to national data security” and “protect the public interest.”

The whole thing has been a bit of a disaster for Didi. First, the regulator asked the company to stop accepting new users. Then, it asked stores in China to remove the Didi app, saying it “seriously violated Chinese laws and regulation on personal information collection and usage.” As a result of the investigation, Didi stock has taken a big hit.

It’s worth noting that CAC has now expanded its investigation, announcing it’s also launched similar cybersecurity investigations into three other companies that recently listed on the US stock exchanges. One such company was Full Truck Alliance, which offers a digital freight platform and has been described as ‘China’s Uber for Trucks’.

Given that NIO is a Chinese company with a US listing, it’s no surprise sentiment towards the EV stock has deteriorated. There’s no indication NIO is going to be investigated by Chinese authorities. However, investors don’t like the uncertainty. Many appear to have lost confidence in the stock.

NIO continues to grow

However, it’s worth pointing out that news from NIO this month has actually been quite encouraging. On 1 July, the company announced it delivered 8,083 vehicles in June, up 116.1% year-on-year. For the three months to the end of June, it delivered 21,896 vehicles, up 111.9% year-on-year.

So, clearly, NIO is still growing at a rapid rate. And this growth is impressive when you consider that the company has been impacted by the global semiconductor shortage.  

It’s also worth pointing out that NIO has a long growth runway ahead. Analysts at S&P Global believe EV sales in China could hit six million units by 2025, up from 1.3m units in 2020.

So, if I was a NIO investor (I’m not as I think the stock’s valuation is too high), I’d be inclined to look through the regulatory uncertainty and focus on the long-term growth story here.