Why Nio Stock Slumped Today

What happened

Shares of Chinese electric car company Nio (NYSE:NIO) slipped 2.8% in 2:25 p.m. ET trading Wednesday afternoon, joining in a multi-car company pileup that cost Lucid Group (NASDAQ:LCID) more than 5% and sent Rivian Automotive (NASDAQ:RIVN) crashing 18% lower.

So what

There is one big difference among these three electric car stocks, however: Nio stock has been “range-bound” for pretty much the entire past month. In fact, if you compare the stock’s price today to where it was exactly one month ago, Nio stock is up only $0.01 in price!

Compare that to Californian electric car company Lucid Group, though, whose stock has roughly doubled over the last 30 days. And compare it to Rivian, which up until investors slammed on the brakes today, hadn’t suffered a single losing session since its stock IPO’ed one week ago.

Red arrow going down crosses a green arrow going up.

Image source: Getty Images.

Now what

Now why might that be? I’m only speculating here, but consider:

Say you’re an investor, and you believe that electric car stocks are the future — but you’re concerned about the risk of investing in a company that has great potential, but no profits at all.

For investors used to thinking of stocks with low P/E ratios as “cheap,” and high P/E ratios as “expensive,” and no P/E at all as “risky,” you might be especially nervous about investing in a company that not only has no P/E, but operates in a foreign market like China, where the government often acts irrationally, and you have little insight into how things are really working out for the company on the ground.

All of a sudden, though, not one but two new electric car companies — Lucid and Rivian — go public right in your backyard. They may not have profits, sure, but neither does Nio. And at the very least, they’re American companies. You know the SEC will be keeping tabs on their business for you, and making sure their financial statements are on the level. In a situation like this, might you perhaps be inclined to avoid the seemingly riskier Nio stock, and prefer the more familiar Lucid and Rivian?

I think you might. And I think that might be why Lucid and Rivian stocks have been going up so much lately, while Nio stock has been stuck in neutral.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.