Founded in 2014, NIO is headquartered in Shanghai, China, they are actively engaging in research and development with design, manufacture, and sale of electric vehicles, next generation technologies in connectivity, autonomous driving and A.I., but let’s face it, many investors in NIO stock got crushed this past year. A fascinating company with vision that could bring about great electric cars for a growing wealthy Chinese population struggled.
The NIO company has designs that remind one of the dieter rams aesthetic.
The Chinese electric car company talked about ambitious plans such as a social network based around NIO and fantastic intentions to roll out electric cars that would capture the heart, mind and imagination of their target audience.
Unfortunately, this has not been the case so far for holders of NIO stock and most trading investigative analysts will tell you that it’s a loser; definitely not a wise investment.
I’m not going to lie. I was entranced by NIO stock and its marketing. Thankfully, I saw value elsewhere and stayed away from the hype. Many would go on and buy NIO stock at around $9.00 and watch as NIO stock dwindled to its current levels of $2.37 at the time I was writing this.
Now, holders like yourself may have a few critical questions in mind regarding NIO. Should you hold, should you scoop up some more NIO stock while it is in this level, or should you sell and look for gains elsewhere?
What is the future of NIO stock?
Let’s find out.
Is NIO Stock on a Rebound?
The critical question for those who seek to buy the NIO dip is if the stock bottomed out. NIO shares hit a low of $1.51 before trending up to price per share of around $2.37 at the time of this writing. But will it continue to regain momentum and come to prior levels?
Let’s look a little deeper into NIO and its potential.
One way to gauge growth with NIO is to understand its deliveries. The electric car company is reporting positive delivery numbers over the past few months, starting with October.
A recent report published by the company notes
“NIO delivered 2,528 vehicles in November, maintaining the strong momentum achieved in October and representing the fourth consecutive month of delivery growth. The deliveries consisted of 2,067 ES6s, the Company’s 5-seater high-performance premium electric SUV, and 461 ES8s, the Company’s 7-seater high-performance premium electric SUV, and its 6-seater variant. As of November 30, 2019, aggregate deliveries of the Company’s ES6 and ES8 reached 28,743 vehicles, of which 17,395 vehicles were delivered in 2019.”
The Chinese car maker expects to see further growth in deliveries as it increases its NIO Houses and sales channels. It now has a presence in over 40 Chinese cities, according to the company.
Topline growth is excellent, but what about the other financials?
NIO Loses Money and They’re Burning Cash
Unfortunately, losing money as an innovative company is terrible but not uncommon, but burning cash and running through your cash stash is a business commandment that cannot be broken if they wish to remain in business.
Cash is the lifeblood for any company.
Unfortunately, NIO is burning over $400 million per quarter. That’s not good when the entity has a $2.8bn market cap.
Do you see anything wrong with this picture?
First, why is the market cap still at $2.8bn when it should be much less considering the quarterly cash burn and negative gross margin.
Couple the fact that losing valuable cash with the aspect of its inferior gross margin, NIO is, in fact, losing money on its selling activities as well. A negative gross margin indicates that there’s no profit potential. They’re not currently holding even but actually losing money by its shear existence. Anyone who sees this trend in any other business would be counting the days until it closed shop. It is like opening a lemonade stand. If I bought my ingredients at premium prices but sold my final product at lower prices, I’d be more than donating my own money, I’m practically giving it away. Unless I have unlimited resources, I’d have to do a few things to save my business like increase my prices and find better prices for my inventory and supplies.
We can see that the corporation is increasing its net borrowings while cash positions and short term investments.
NIO will have to conduct another raise if it continues to go at this cash-burning pace.
NIO and Tesla China
Maybe burning cash would be alright if NIO was the only electric car manufacturer in China, but Tesla moved into town. Oh, and Tesla, at the latest count, delivered around 5,000 cars in China.
We know not to bet against Tesla, or you will most likely get burned.
Recommendation: DO NOT BUY FOR THE LONG TERM
NIO is a Wall Street bet, a casino play, a mere gamble, and far from an investment. If you’re interested in NIO, watch out for financing events, and buy after dilution of shareholder equity, ie, another equity issue.
A slight uptick for NIO does not scream a buy in the short term.
The future of NIO stock does not look bright to me, not by a long shot.
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