Hong Kong (CNN Business) The company billed as China's answer to Tesla has freaked out investors by warning that demand for its electric vehicles has failed to live up to expectations.

Shanghai-basedstock plummeted 18% in after-hours trading in New York after it reported late Tuesday that sales have been sluggish so far this year. It also scrapped plans to build a factory in China.

Before the alarming earnings report, Nio's shares had gained more than 50% following its IPO in September as investors bet that its flashy SUVs would win lots of customers in the world's largest electric vehicle market.

But the company announced Tuesday that sales of its flagship electric SUV, the ES8, only reached 1,600 in the first two months of this year, which it said represented "a greater than anticipated slowdown."

It blamed the slump on uncertainty over government subsidies for electric vehicles, China's slowing economy and disruption caused by the Lunar New Year holiday in February. But Chief Financial Officer Louis Hsieh warned that Nio expects the weakness to continue into the second quarter of this year.

China's auto market, the world's biggest, shrank last year for the first time in about two decades.

But the Chinese market for electric vehicles has bucked that trend. Sales jumped more than 30% in 2018, according to research firm Marklines , helped by supportive government policies like subsidies.

Nio said Tuesday that consumers are still waiting for clarity on what the subsidy policy for electric vehicles will be this year.

"The electric vehicle market is going to grow this year," said Tu Le, the founder of Beijing-based consulting firm Sino Auto Insights. That suggests Nio's disappointing sales figures may signal deeper problems for the company, he added.

"There just isn't demand for their car," Le said. "It could be pricing, it could be that they're not resonating with consumers."

The ES8 sport utility vehicle on display in Shanghai, China.

Hsieh said the company has "witnessed strong interest" from consumers in its new, smaller SUV, the ES6. It plans to start delivering the vehicle to customers soon.

But the ES6 may have been one of the reasons for Nio's poor results this quarter, said Ben Harburg, managing partner with MSA Capital, a venture capital firm that invested about $40 million in Nio when it was still a private company.

"Nio essentially cannibalized their own market with the ES6," Harburg said. "There is no incentive to buy the ES8. It's the same car with a lower price point and longer range."

Plan for new factory abandoned

Another source of concern for investors is Nio's unusual business model. The company pays another Chinese automaker, JAC Motors, to manufacture vehicles on its behalf.

Nio had planned to build its own factory in Shanghai, but it said Tuesday that it was killing off that idea. That suggests demand for its vehicles could remain weak long term, Le said.

The existing arrangement with JAC will give Nio the "capacity and flexibility to support its market penetration and growth plans for the next two to three years," the company said in its statement.

Tesla TSLA Geely GELYF BYD BYDDF Nio is facing an increasingly competitive electric vehicle market in China.is building a huge manufacturing plant in Shanghai that aims to start producing cars by the end of the year. China has a number of big homegrown electric vehicle makers — includingand Warren Buffett-backed— as well as a large number of smaller upstarts.

"I'm not sure if they'll be able to carve out a position in the market," Le said of Nio.

MSA Capital's Harburg added there needs to be consolidation in the Chinese market given how many players there are.

The company reported Tuesday that its net loss widened to around 3.5 billion yuan ($510 million) in the fourth quarter of 2018, from 2.8 billion yuan ($415 million) a year earlier.

Its stock has seen wild swings since it went public. The shares soared 75% the day after they were listed in New York.

CNN Business' Paul R. La Monica contributed to this report.