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Why Nio Stock Is Plunging Today

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What happened

After a stunning double-digit rally in its shares yesterday, Nio (NYSE:NIO) is swiftly giving up all of those gains and more today. As of 11:11 a.m. ET on Thursday, the electric vehicle (EV)  stock was deep in the red and trading down 15.7%.

So what

March 10 will go down in Nio’s history as an important day: The company’s shares started to trade on the Hong Kong stock exchange. Nio decided to list in Hong Kong after regulatory pressure on foreign stocks in the U.S. intensified, with the Securities and Exchange Commission’s recent rule allowing the delisting of foreign stocks in the U.S. if the companies fail to meet audit requirements.

Although there’s been no instance of any such failure on Nio’s part, the threat for Chinese stocks in particular is real. China has persistently disregarded disclosure rules in the U.S. and has not allowed auditing by the U.S. so far.

Nio didn’t want to take a chance and therefore opted to list in Hong Kong, which should not only offer its investors an additional trading venue but also greater flexibility in trading hours. And the stock made a strong debut in Hong Kong, rising nearly 6% during the day, according to EV news website CnEvPost.

Unfortunately, the stock failed to maintain momentum on its debut day and closed down about 0.7%. And that weakness seems to be spilling over to Nio’s American depositary shares on the New York Stock Exchange today.

But a larger share of the blame for Nio’s fall today can be passed on to Tesla (NASDAQ:TSLA).

Image source: Getty Images.

China is an important market for Tesla, and Nio is touted to be the EV leader’s biggest threat in the nation. In fact, Nio’s CEO William Li even said last year that the company aims to provide “better product and service at prices lower than Tesla Inc’s.”

As you might guess, Tesla’s progress (or lack of it) in China can have a huge bearing on investor perceptions around Nio.

The China Passenger Car Association today released data for February. Tesla’s Model Y emerged as the top-selling premium SUV in China last month, with retail sales surging almost 300% year over year, according to CnEvPost.

In terms of overall sales of new energy vehicles in China last month, Tesla was second only to BYD with 18,593 units sold, while Nio ranked eighth, including roughly 3,300 unit sales of its SUV, the ES6.

Now what

Tesla’s latest sales numbers show how massive the demand for its vehicles is in China. Nio, on the other hand, is only just getting started by comparison and has a long way to go.

Elsewhere, XPeng (NYSE:XPEV) is also giving Nio stiff competition. XPeng today started taking reservations for its P5 sedan in four countries in Europe. The rising competition is making Nio investors nervous today. 

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.


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