Shares of Nio Inc., the China-based electric-vehicle maker, took a nosedive on Wednesday to their lowest prices in almost four years. This decline comes as investors express concerns about Tesla Inc.'s price cuts and China's weakening economy.
Tesla Faces Increasing Competition in China
Tesla reportedly slashed prices on two of its models in China as it faces mounting competition. Additionally, the Texas-based electric vehicle (EV) giant apparently cut prices in Germany as well.
Tesla's reliance on revenue from China also seems to be on the decline. In the third quarter, 21.5% of Tesla's total revenue came from China, compared to 23% in the second quarter, 21% in the first quarter, and 22.3% in the entirety of 2023.
Nio's Stock Continues to Plummet
Nio's U.S.-listed stock fell by 2.6% in morning trading, reaching its lowest close since June 12, 2020. The stock has experienced a relentless nine-day losing streak with a decline of 25.1%, putting it at risk of tying the current record loss streak of nine sessions that ended on March 9, 2020.
Concerns over China's Economy
Apart from facing increased competition, Nio's stock weakness is further exacerbated by concerns surrounding China's economy. Over the long weekend, the People's Bank of China decided to keep interest rates unchanged, which disappointed many investors.
According to analysts at J.P. Morgan, the argument for the People's Bank of China (PBOC) to cut rates was clear.
Housing Market Corrections and Rate Cuts in China
A surge in defaults by developers and the impact on debt-service ability for local government financing vehicle (LGFV) entities have been caused by housing-market corrections in China, according to analysts. They also highlighted the need for rate cuts to alleviate the burden of debt repayment due to deflation pressure, weak corporate profits, and diminished household-income expectations.
Impact on EV Makers
China-based electric vehicle (EV) manufacturers have been affected by these market conditions. Shares of XPeng Inc. (XPEV) dropped 3.9% to reach a seven-month low, while Li Auto Inc.'s (LI) stock slid 4.1% to an eight-month low. Similarly, the U.S.-listed shares of BYD Co. (BYDDY) experienced a 4.1% decline, putting them at risk of their lowest close in 10 months.
Tesla, a prominent player in the EV industry, faced a 3.1% slump in its stock, which fell to a 10-week low. Over the past 13 sessions, Tesla's stock has declined 11 times, resulting in an overall 18.4% decrease. Furthermore, the stock was heading towards a fifth consecutive weekly loss, marking the longest such streak since May 2021.
Impact on ETFs and S&P 500
The Global X Autonomous & Electric Vehicles ETF (DRIV) dropped 1.9% to hit a two-month low during morning trading. The iShares MSCI China ETF (MCHI) also experienced a loss of 2.9%, reaching a 15-month low. Additionally, the S&P 500 index (SPX) eased 0.5% during this period.
These developments demonstrate the challenging landscape faced by the housing market in China and its subsequent impact on various sectors, including EV manufacturers and broader market indices.