Why NIO shares fell and then recovered today

What happened

Chinese manufacturer of electric vehicles (EV) NIO (NYSE: NIO) has a market capitalization over $ 70 billion, so a small percentage move of the stock doesn’t have too much of an impact. But investors may have reacted to the loss of a frame this morning when the stock fell more than 2% early in the session. However, the stock reversed course and at 3:30 p.m. EDT, stocks were up 2% on Tuesday.

So what

The initial drop may have been in response to the announcement that the company’s vice president for software product management was leaving to work for General Motors (NYSE: GM). Rachad Youssef has become a product manager for GM’s BrightDrop EV subsidiary, effective immediately. GM already has a significant presence in China, and the poaching of an NIO executive may have worried some investors. But BrightDrop is currently not a direct competition for NIO, which could explain the reversal that put stocks in the dark today.

NIO ES8 electric SUV. Image source: NIO.

Now what

There is no doubt that NIO will face increasing competition in its home market. Much of this will initially come from other Chinese electric vehicle manufacturers. But global automakers will also increase sales of electric vehicles there. GM already has a large company there for traditional internal combustion vehicles and new energy vehicles. In the second quarter of 2021, GM said it delivered more than 750,000 vehicles to China, including more than 90,000 electric vehicles under joint venture partnerships. As a prospect, NIO delivered just under 22,000 of its electric vehicles during the same period.

GM’s BrightDrop won’t be in direct competition at this time, as it initially focuses on electric commercial delivery vehicles and a related ecosystem. But NIO shareholders will need to be comfortable with volatility. At its current valuation, it will need to grow significantly, and any bump along the way could scare some investors off, which could be the start of today’s trading session.

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Howard smith owns shares of NIO Inc. The Motley Fool owns shares of NIO Inc. and recommends it. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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