Back in December 2019, I wrote a piece about the Present and Future of NIO Stock with recommendations. This is just a follow up to see how well that aged.
The NIO Stock Price Jump
NIO has had a bumpy ride so far and I don’t think is settled just yet. We know that the premium EV maker has seen renewed enthusiasm with its stock rising over 50% last week on decent financial results.
What did NIO do?
The company showed up with an increase in deliveries in the prior quarter. That means sales rose further, allowing the company to show strong momentum. Margins per unit did also improve substantially in the prior quarter but it wasn’t comparatively better to the prior year.
Of course, the company saw a net loss over the prior quarter but it found ways to lower its loss as compared to the prior quarter.
But the main question we need to ask is if NIO will be in a better position moving forward?
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NIO Stock Pressures
Declining Cash Position
The company is still bleeding cash and will need to raise further funding to operate into the future. Importantly, diving into the details, where and how will the company cut costs?
We can’t forget about the elephant in the room, Tesla China. Remember also that Chinese banks gave Tesla credit funding fairly recently to build out its EV plant.
What are the positives for NIO ?
We already seen what they’ve done so far with the price increase and deliveries, which is a positive but I still believe there are stronger negatives that keep this asset off my portfolio.
I don’t like to focus on the fear, uncertainty, and doubt but this EV company has a lot of negatives that can not, and should not be ignore.
NIO seems to want to cut prices to sell more vehicles. Check out the ES6. It is priced to sell and we may expect an increase of sales, but revenues will likely rise only slightly due to the lower price point.
Let’s look at other areas of the company.
Negative margins plague the company.
Let’s not forget about the 5,000 ES8 recalls due to vulnerabilities and battery fires.
The cash dwindles.
The major question is: Who believes in NIO enough to extend more credit?
How will NIO secure the funding it desperately needs to survive?
It may just have to get an infusion from the lender of last resort, the Chinese government but that might be selling one’s soul to the devil. Is it a good idea to go that route if no other is viable?
I think not.
Remember that Tesla is not the only company moving into the Chinese market. Other large, foreign, well-funded corporations are also moving in as well. But that’s not all. Lixiang, or CHJ Automotive, an EV auto manufacturer is also going to IPO, likely within the first half of this year.
Sure, EV interest is on the rise but its a tough market for all entrants.
As stated in my December 2019 post, “The future of NIO stock does not look bright to me, not by a long shot.”
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