Investors in the electric vehicle (EV) industry received some concerning news on Friday regarding NIO, a prominent Chinese EV maker. This development could potentially impact not only NIO but also other players in the market, including Tesla. However, it will take some time for investors to fully comprehend the implications of this announcement.
According to a report from Reuters on Friday, NIO is planning to lay off approximately 10% of its workforce. At this time, NIO has not responded to requests for comment regarding these layoffs or the reasons behind them.
The fact that a major player in the world's largest market for electric vehicles is downsizing is not particularly positive news. The situation may point to several possible factors, such as declining demand, intensifying competition necessitating increased efficiency, or specific issues and plans related to NIO.
However, it appears that demand is not the main issue. In China, sales of battery electric vehicles (BEVs) have actually increased by around 20% compared to the previous year. BEVs have consistently accounted for almost 25% of total vehicle sales in recent months.
Nonetheless, demand is only one facet of the overall business equation. The supply side also factors into the equation, and China boasts numerous EV manufacturers. As a result, a price war has unfolded in 2023 as companies strive to maintain their market share against formidable contenders like BYD and Tesla. So far this year, both BYD and Tesla have outpaced the Chinese market in terms of growth.
BYD's BEV sales have surged by approximately 75% in comparison to 2022, while Tesla's sales have risen by about 45% in China. NIO's sales have experienced growth of around 36%.
Therefore, these layoffs primarily seem to stem from heightened competition rather than a decline in demand. The report underscores the presence of "fierce competition" in the market.
NIO Stock Rises as Chinese EV Deliveries Hit Record High
Investors are showing optimism as NIO stock experiences upward momentum. U.S.-listed American depositary receipts (ADRs) saw a 2.1% increase in premarket trading on Friday, while S&P 500 and Nasdaq Composite futures dipped slightly by 0.1% and 0.2% respectively.
NIO's stock performance has been impressive this week, with a notable surge of 4.6% on Thursday, alongside a positive day for the market where Nasdaq Composite gained 1.8%. This upward trend was preceded by a 2.1% jump on Wednesday when NIO reported a delivery of 16,074 units in October.
In a combined effort, NIO, XPeng (XPEV), and Li Auto (LI) achieved a record-breaking delivery of 76,498 units in October, marking an outstanding achievement in the Chinese EV market. Another major Chinese EV leader, BYD, also saw extraordinary success in October with a delivery of 165,505 battery electric vehicles.
These impressive delivery numbers have helped alleviate concerns about a global slowdown in the EV industry. Earlier this week, ON Semiconductor (ON), an auto chip supplier, announced a downward adjustment of their fourth-quarter revenue by approximately 10%, causing Tesla stock to drop almost 5%. However, thanks to strong deliveries in China, Tesla stock rebounded and experienced an overall gain of nearly 11% from Monday to Thursday.
While the news of NIO layoffs may raise some concerns, the record-breaking October sales provide a sense of balance between positive and negative developments.