NIO stock pops on China stimulus optimism, but there’s a catch

Chinese stocks, including electric vehicle maker Nio Inc. (NIO), surged this week after Beijing vowed to unleash fresh stimulus in the new year to boost demand.

NIO's stock price climbed 12.4% on Dec. 9 to close at $5.18, its highest level in over a month.

The euphoria that boosted Nio quickly faded the following day as the stock fell more than 7%. The decline was accompanied by a massive 75% drop in trading volume, according to Yahoo Finance data.

As of today's writing, Nio has a total market capitalization of $10 billion, placing it seventh among publicly traded EV makers.

Although Chinese stimulus bets were the tide that lifted all ships this week, it’s not the first time Beijing has vowed to boost growth—to no avail in the long run.

In early October, the government unleashed a “Golden Week” stimulus, but the impact was short-lived as consumer and investor confidence fizzled.

Beyond the stimulus hype, Nio investors have had very little to cheer about recently. The stock is down more than 46% in 2024 as the company struggles to become a competitive EV brand.

For its fiscal third quarter, Nio reported a 2.1% drop in revenue, a 4.1% decline in car sales, and an 8.1% increase in operational losses. Net losses ballooned by 11% and R&D expenses were 8.1% higher compared to a year earlier.

With these figures, Nio will need more than government stimulus to become a viable EV player amid fierce competition from Tesla (TSLA), China’s giant BYD (BYD), and legacy automakers transitioning to EVs.

Nio’s EV struggles

Nio operates two brands—a premium electric vehicle line that goes by NIO and ONVO, a more family-oriented smart car. In the third quarter, 98.6% of the company’s vehicle sales came from its NIO brand.

The company’s battery-as-a-service is a unique offering that allows drivers to purchase a Nio car without the battery and pay a monthly fee instead. But even this outside-the-box thinking has left Nio struggling to differentiate itself from the more than 200 EV manufacturers in China.

While the company is increasing sales, it’s also incurring higher costs and struggling to keep up with the EV price wars. The first quarter of 2024 was especially brutal as automakers introduced massive price cuts to gain market share.

These challenges are reflected in NIO’s stock price, which has crashed some 90% from its 2021 peak as the company continues to burn cash and dilute its shareholders.

Industry analysts say China’s EV market is thriving, but only a few companies will make it out alive.

“China’s EV industry is only going to go from strength to strength as a whole, but not every player today will see the finish line,” said automotive industry commentator Mark Rainford.

There’s no guarantee that Nio will be among the companies that cross the finish line.