Nio could have picked a better time to make its public debut.
The company priced its shares at just $6.26 apiece and will begin trading under the (NIO) symbol later Wednesday. What many are calling the "Tesla (TSLA) of China" and a "Tesla Fighter" - much like investors call iQiyi (IQ) the "Netflix (NFLX) of China" - is not off to a very welcoming start.
The company is selling 160 million American Depository Shares and will raise $1 billion as a result of the IPO. That's notably below the $1.8 billion the company was looking to raise earlier this year, according to reports, and is at the bottom end of its $6.25 to $8.25 range.
Market says meh on Nio IPO but the cars are ���� https://t.co/Aef6UcPcYl— Brian Sozzi (@BrianSozzi) September 12, 2018
So what's got the stock under pressure already?
There are likely a number of catalysts at play here. Even though China is the No. 1 market in terms of electric vehicle sales, total auto sales in China did fall for the second straight month in August. So there's concern over the health of the auto market there.
Further, there's concern around China in general. The U.S. is putting up a bigger fight on the trade war than many had expected, while Chinese equities have been getting sacked. For reference, the iShares Chinese Large Cap ETF (FXI) is down almost 20% over the past three months.
Finally, Tesla has shown just how costly it can be to get an automotive startup off the ground. Even though Tesla has found immense success with its Model S and X lineup, the costs have run into the billions. New models, new factories and new production processes can easily run into the billions. It's incredibly difficult to achieve profitability and margins tend to be pretty thin.
Tesla and Ferrari (RACE) aside, just look at the valuations that some of these stock get. General Motors (GM) , Ford (F) , Fiat Chrysler (FCAU) , Daimler (DDAIF) and others trade at incredibly low valuations, despite being profitable and paying out large dividend yields.
Nio was founded in 2014 and recently began delivering its all-electric ES8 SUV in June. While business has surely picked up, Nio had just $7 million in revenue for the first half of 2018, while net losses eclipsed $500 million.
Between all these catalysts, that's likely got investors turned off on the idea of buying Nio stock right now. That said, Tesla went from a sub-$5 billion market cap six year ago to a market cap of about $50 billion currently. So the potential is there if Nio can execute.