Why Nio Stock Slumped Today

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What happened

After kicking off the first trading day of 2022 on a solid note, electric vehicle (EV) stock Nio (NYSE:NIO) reversed course on Tuesday and tumbled 5.4% as of 1:30 p.m. ET. An analyst sees Nio stock doubling in 2022, but even that doesn’t seem to have piqued investor interest.

So what

Deutsche Bank analyst Edison Yu released a bullish note on Nio on Jan. 4, projecting the EV maker’s stock to recover sharply this year after a dud 2021, backed primarily by new product launches. To name a few, Nio expects to start deliveries of its flagship sedan ET7 in March and of its just-launched mid-size sedan ET5 in September. Nio is also expected to unveil a sixth model this year, and has aggressive plans to expand internationally, especially in Europe.

Image source: Nio.

Yu believes these growth catalysts could drive Nio shares to $70 apiece over the next 12 months, implying 109% upside from the stock’s closing price on Jan. 3. So why didn’t Nio shares take off despite the huge analyst price target? You might want to blame Tesla (NASDAQ:TSLA), at least partially.

Tesla just reported massive delivery numbers for its fourth quarter while Nio managed just about 50% higher year-over-year sales in the month of December. On the one hand, Tesla’s bumper sales reflect how strong the demand for EVs is. On the other, Tesla’s rise is a direct threat to Nio, which itself is often called the “Tesla of China.”

Moreover, China slashed subsidies on electric vehicles by 30% beginning Jan. 1, which could eat into what’s been one of the biggest competitive advantages for local EV manufacturers over foreign companies like Tesla so far.

It is important to note here that while subsidies in China are available for electric cars sold only below a certain price point that doesn’t apply to Nio, customers availing Nio’s battery-as-a-service (BaaS) service are eligible for subsidies. BaaS gives Nio’s customers the option to save up to $10,000 per car by buying cars without batteries and instead opting to swap and charge batteries at Nio’s battery swapping stations when needed. In short, lower subsidies could make Nio’s battery-swap-supporting cars less attractive when compared to peers in terms of pricing.

Tesla is proving a tough competitor outside of China as well — Tesla has emerged as the best-selling brand in Norway, also the first and only international market that Nio has ventured into so far.

Now what

With most EV stocks dropping on Tuesday, Nio followed the tide. Investors now also want to see bigger things and bigger numbers from Nio to gauge whether and how fast can it catch up to Tesla. That could mean higher volatility in Nio shares, but 2022 could eventually be a huge year for the EV stock if Nio starts delivering on its plans.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.