Chinese Electric Car Maker NIO Plunges Most Since Its IPO

Mar 06 2019, 4:10 PMMar 06 2019, 7:24 PMMarch 06 2019, 4:10 PMMarch 06 2019, 7:24 PM

(Bloomberg) -- NIO Inc. is set for its worst trading day on record, after the China-based electric-vehicle maker lowered its first-quarter delivery outlook and canceled its plan to build a manufacturing plant in Shanghai.

Shares of the company dropped as much as 20 percent in New York on Wednesday, after rising over 62 percent through Tuesday since the initial public offering in September. The stock dropped to $8.12, touching the lowest since Feb. 22.

The guidance cut prompted at least one analyst to downgrade the stock. BofAML analyst Ming Hsun Lee lowered his rating on NIO to underperform from neutral, noting lower-than-expected sales growth for the ES8 and a “rich valuation."

While rival Tesla Inc. has recently lowered the prices for its cars, Lee noted that NIO does not have plans to lower its price, as such an adjustment may damage its brand equity. However, the analyst believes the company would have to eventually offer some discounts. “We believe NIO would have to offer some incentives or more features on ES6/ES8, amid peers’ new product launch/price discount, and the electric vehicle purchase subsidy cut later this year,” Lee added.

The troubles with delivery outlook should not surprise any industry watcher, given Tesla has also repeatedly struggled with meeting delivery targets in the past. The company has recently started delivering its Model 3 sedans in China, the largest auto market in the world and one that many predict will lead the charge in getting buyers to give up gas guzzlers and go electric.

NIO’s lackluster guidance flagged a key issue that has also dogged Tesla in recent months. Bernstein’s Robin Zhu noted that while NIO’s fourth-quarter numbers were on the soft side, its demand concerns may actually prove more damaging for investors’ long-term outlook on the company. “NIO’s fourth-quarter release pointed to February deliveries of just 811 units,” Zhu said, adding that lower capacity utilization is expected to weigh on gross margins in the first quarter.