Picture supply: Sam Robson, The Motley Idiot UK
I’ve just lately been trying to find a turnaround inventory for my ISA portfolio. And NIO (NYSE: NIO) has caught my eye, on condition that the inventory is down virtually 20% for the 12 months.
Over 4 years, it’s crashed 92% and now trades for simply $3.50!
NIO has a perennial drawback
Based in 2014, NIO is a Chinese language electrical car (EV) producer that focuses on the premium section, significantly SUVs and sedans.
Nevertheless, what units it aside are its battery-swap stations, the place drivers can alternate a battery in a couple of minutes fairly than charging it. NIO operates roughly 3,354 of those stations, with the overwhelming majority in China.
The corporate was once dubbed the ‘Tesla of China’. However that moniker isn’t used anymore, because it has by no means turned a revenue and its $7.3bn market cap is a fraction of Tesla’s.
NIO’s constant losses have at all times put me off investing. In 2024, the agency delivered 221,970 autos, up 38.7% 12 months on 12 months, producing income of $9bn (up 18%). But it nonetheless misplaced $3bn, virtually the identical quantity because the 12 months earlier than.
In Q1, the agency misplaced one other $930m, which was 30% greater than the 12 months earlier than. Nevertheless, CFO Stanley Yu Qu tried to reassure traders: “Because the first quarter, we now have applied a spread of price management measures, together with organisational restructuring, cross-brand integration, and effectivity enhancements…Ranging from the second quarter, the corporate goals to realize structural enhancements in total price effectivity.”
I received déjà vu studying that, as a result of NIO has been saying such issues for all of the years I’ve been following it. But the losses hold coming, and the share value retains falling ever decrease.
A bruising value warfare
One other factor that places me off is the brutal EV value warfare in China, NIO’s house market. That is exhibiting no indicators of abating, and EV large BYD just lately lowered costs much more on some fashions. Apparently the Chinese language authorities is rising very involved concerning the business.
The worth warfare is like an anaconda, constricting revenue margins. In such an surroundings, I doubt that NIO has any actual pricing energy.
That stated, it has launched a few cheaper sub-brands to attraction to totally different clients. ONVO is a family-oriented one, and Firefly is a smaller high-end EV. Maybe these can stand out in an more and more crowded Chinese language EV market.
My transfer
Analysts presently forecast a 35% improve in income this 12 months. Whereas that’s spectacular at first look, the losses are going to proceed for years to come back, in accordance with the identical forecasts.
Clearly, we are able to’t assign NIO inventory a P/E ratio as there are not any earnings. On a price-to-sales foundation, the a number of is simply 0.75 instances.
That would show to be a generational cut price if there’s a ceasefire in China’s EV warfare, NIO’s new manufacturers promote like hotcakes, and it lastly turns a revenue.
Nevertheless, there are too many ifs there for me. And with simply $3.6bn in money and equivalents on the finish of Q1, I concern the corporate will quickly want one more injection of capital to maintain the manufacturing unit lights on.
Weighing issues up, I’m no extra bullish on NIO at $3.50 than I used to be at $10. So I’ll hold searching for that potential turnaround inventory elsewhere.
