Why Nio Stock Plunged 23.7% in October

After a dull first half of the year or so, Nio (NYSE: NIO) stock rebounded dramatically to gain almost 65% in the month of September alone. However, Nio's rally seemed unsustainable at least in the short run, and the electric vehicle (EV) stock ended October down 23.7%, according to data provided by S&P Global Market Intelligence.

In particular, Nio's numbers failed to live up to investors' expectations, but there's no need to panic. Investors in Nio stock should, instead, watch out for the Chinese electric vehicle (EV) maker's next big event on Nov. 20.

Nio's deliveries are stabilizing

After Nio's bumper second quarter, I warned investors to temper their expectations from the company. It was, after all, an exceptional quarter, during which Nio's deliveries jumped 144% year over year following a long, challenging period.

Last month, Nio announced an 11.6% year-over-year growth in its deliveries for the third quarter, including a 35% increase in deliveries for September. It was a record quarter, but investors expected more, and the stock tumbled. With updates from China further failing to impress, Nio shares continued to fall through October.

You see, Nio is a prominent player in China's EV market, with a market share of more than 40% in the EV segment priced above 300,000 yuan. So when China's top economic planner, the National Development and Reform Commission (NDRC), announced a stimulus package some weeks ago, Chinese stocks like Nio surged as investors expected local manufacturers to benefit from the government's stimulus measures.

Investors betting on Chinese stocks expected the NDRC to reveal more details and, perhaps, an even bigger package at an event in October, but that was not to be. The NDRC announced nothing new, sending the Hang Seng index and Nio stock plunging.

This event could decide where Nio stock heads next

The next big trigger for Nio stock could be its third-quarter earnings release on Nov. 20. While Nio has already announced its Q3 delivery numbers, the key number to watch out for is margin.

In Q2, Nio reported a vehicle margin of 12.2% versus 9.2% in the first quarter. Management said it expects margins to grow further in the remaining two quarters of the year and hit 15% by the end of the year. That's a key number, and it'll be worth tracking how Nio achieves the target especially now that it has a cheaper model on sale, the Onvo L60 SUV.

Onvo is Nio's first mass-market brand and L60 the first model under Onvo, deliveries of which began in September. Nio sold around 4,300 units under Onvo in October, which pushed its total monthly sales above 20,000 units yet again. With management expecting Onvo to become a bigger brand, striking a balance between rising sales of a lower-priced product and margins could be tricky.

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Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.