Electric vehicle (EV) manufacturers have been in the news a lot recently, but unfortunately not for many of the right reasons. NIO (NYSE:NIO) endured a tough month, falling by 13%. There were a couple of stand-out reasons that I saw contributing to the drop in NIO stock.
Losses increasing
The first one was poor Q3 results, which came out in the second half of November. The report showed total revenue of $2.66bn, a drop of 2.1% from the same quarter in 2023. As for the bottom line, NIO lost $746.4m, which was more than expected and an increase from both the loss posted last quarter and the loss from a year ago.
It’s true that the company is delivering more vehicles. During the quarter, it achieved a record-breaking delivery of 61,855 smart EVs. This is great, but NIO still faces the problem of needing to improve profit margins to enable it to break even and flip from posting losses to becoming profitable.
The results couldn’t provide a catalyst for the stock to rally, leaving investors somewhat underwhelmed.
China trade concerns
Another factor that hurt the stock was the US Presidential election result. Donald Trump’s victory is seen as a difficult one for relations with China, given his stance on tariffs and other trading measures.
He has outlined that he intends to add an additional 10% tariff on Chinese imports as one of his first acts as President in January. We don’t know what will come after that, but it’s likely that companies like NIO won’t be able to penetrate the US market very well in the coming years.
Of course, NIO still has a large potential market in Asia, it doesn’t need the US in order to be successful. But NIO is a stock that’s listed in Asia but also in the US. So it’s easier for US investors to express a negative view on the whole situation via NIO shares than some other companies that might not be listed on the US stock market.
Trying to find value
Looking ahead, we’ll have to wait until early 2025 to get more financial updates to see how the company is performing. Without much company-specific information, I expect the share price will continue to move lower. After all, it’s down 38% over the past year. In my experience, when a stock is trundling lower over a long period of time, it takes a clear catalyst in order to spark a rally.
Of course, some investors might consider it to be a value purchase right now. It’s difficult to pin a fair value, given that the company is loss-making. However, some might think that NIO will be able to keep growing market share in China and the rest of Asia. If EV demand jumps in the coming year and deliveries keep increasing, there’s the potential for it to make a profit.
