- Nio cuts model prices by $4,200, though Q1 vehicle margin dropped to 5.1%.
- New Nio customers will lose access to free battery swapping.
- May deliveries from the EV company dropped 12% YoY.
- NIO stock breaks above 50-day moving average, targets 200-day MA.
UPDATE: Nio stock jumped 6.4% at the open on Tuesday, rising to just under $9 per share. The price action comes in response to Monday’s news of price cuts, but the US Consumer Price Index released Tuesday morning has also left the market quite bullish as May inflation arrived below expectations.
It was only two months ago that Nio (NIO) management was certain they did not want to react to Elon Musk’s drastic price cuts over at Tesla (TSLA). Now, the executive suite at one of China’s foremost EV upstarts has made an about-face. On Monday, the first session after Nio’s first-quarter earnings results led to a sell-off, CEO William Li announced that all models would see their price tags reduced by 30,000 Chinese Yuan (about $4,200).
In response, NIO stock climbed 8.7% to $8.40 on Monday.
Nio stock news: Free battery swapping ends for new buyers
Back in April when Tesla CEO Elon Musk signaled a new round of price cutting at the leading (battery electric vehicle) BEV automaker, Nio ignored the move.
“We will certainly not join the price war,” William Li said at the time, adding that the company was focused on its value to customers by adding more battery-swap locations.
Last Friday’s Q1 results were less than impressive, however, as the automaker continued to shed gross margin and experience a slowdown in sales, as well as guiding for a weak second quarter as well. In order to protect against even higher losses, the company is ending its free battery-swapping service for new buyers, although it will remain free for prior customers.
“In the face of the changing market, we will observe the dynamics of the operating environment and competition landscape promptly, and continue to strengthen our competitive advantages,” said CFO Steven Wei Feng. “We will stay focused on execution, optimize cost structure, and further improve our operating efficiency.”
Nio delivered just 6,155 electric vehicles in May – a 12.4% decrease YoY. This was not as poor as rival XPeng’s (XPEV) 26% YoY decline, but Li Auto (LI) at the same time grew its sales 146% from May 2022. The latter’s success is likely due to its similar strategy to China’s biggest EV manufacturer – BYD (BYDDY). Both automakers produce plug-in hybrid electric vehicles (PHEVs) that also offer gasoline-powered back-up engines. The hybrid variety is more popular with the Chinese market than pure BEVs.
Nio’s vehicle gross margin in the first quarter dropped to 5.1%. Just one year ago, this figure had reached 18%. Now for the second quarter, management expects deliveries around a midpoint of 24,000, which would be a greater than 8% cutback YoY.
Inflation FAQs
What is inflation?
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
What is the Consumer Price Index (CPI)?
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
What is the impact of inflation on foreign exchange?
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
How does inflation influence the price of Gold?
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
Nio stock forecast: Breaking out of a medium-term downtrend
Nio broke and closed above a medium-term top trendline on Monday. The descending trendline began at least on January 24 and has kept price trending downward for the last five months. NIO stock broke above the trendline on Friday, but the poor Q2 guidance resulted in the stock falling back below the point of resistance.
Likewise, NIO’s share price closed above the 50-day moving average. Now the 200-day sits above at $11.30. Before that, bulls will need to conquer the $9.50 level of support-turned-resistance and the $11.81 shoulder pattern of resistance that surrounds January’s range high that melted in the $13 to $14 supply zone.
NIO daily chart
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