Picture supply: Sam Robson, The Motley Idiot UK
Over the previous 5 years, carmaker NIO (NYSE: NIO) has seen gross sales surge. First-quarter revenues had been down 39% in comparison with the fourth quarter of final yr – however they had been up 877% over 5 years. At round £1.2bn for the three months in query, they’re substantial.
But, regardless of surging gross sales revenues, NIO inventory has fallen 50% in 5 years.
May that provide me an fascinating funding alternative? In any case, even when the share value simply will get again to the place it stood 5 years in the past, that may imply doubling cash put in right now.
Share value fall has occurred with motive
The concept of a share value “simply getting again” to the place it was could be interesting however has no actual foundation in logic. I would love my seems to be to get again to the place they had been 5 years in the past – however that doesn’t imply it would occur.
As a substitute, the query I have to ask as an investor is what I believe an inexpensive value for NIO inventory can be and whether or not I see drivers that might assist push it there.
Right here, issues develop into problematic for the present NIO funding case as I see it.
Positive, gross sales volumes and revenues have surged. So what accountants name the ‘prime line‘ (revenues) is doing effectively.
The issue is all the prices that sit between that and the ‘backside line’. In NIO’s case, the underside line is just not a revenue, however a loss. At near £700m in the newest quarter alone, it’s substantial.
That is the important thing problem I see with NIO. It has been constantly loss-making and burnt by masses of cash. It ended the quarter with round £2.6bn of money and money equivalents, restricted money, short-term investments, and long-term time deposits. But when it retains burning money prefer it has been, I don’t see that lasting far more than a few years at most.
A fork within the street?
NIO might attempt to elevate extra cash, on the threat of diluting present shareholders. My greater concern as a possible investor is just not concerning the money burn a lot because the enterprise mannequin.
Rival Tesla bled money for years earlier than it turned worthwhile. Making vehicles is an costly enterprise with excessive mounted prices. However, with even Tesla now seeing automotive gross sales volumes falling, it’s clear that the electrical car market is extremely aggressive. That may very well be unhealthy information for smaller gamers, together with Nio.
The corporate has pinned loads on its battery-swapping expertise, explaining a few of its money burn. However the potential for considerably longer battery ranges might depart that aggressive benefit useless within the water.
NIO would then have to rely extra on its model, design, and different options that assist set it other than rivals. Once more, although, it isn’t the one carmaker attempting to try this.
With a enterprise mannequin that has but to show worthwhile, money pouring out the door, and a brutally aggressive outlook for the electrical car market even earlier than contemplating any future tariff adjustments, the dangers listed here are too excessive for me.
If issues go effectively and NIO proves its enterprise mannequin, the inventory might effectively double in future. However I’d wish to see far more proof of progress in that route earlier than I’d even take into account investing.
