Don’t Buy at Any Price: Nio Stock Is in a Death Spiral

Nio (NYSE:NIO) just reported another disastrous quarterly earnings result. On Tuesday, NIO stock plunged 20%, and that’s on top of a big decline heading into the earnings report. Putting the declines together, NIO stock is at new all-time lows, and it briefly dipped below the $2-mark on Tuesday, adding insult to injury.


Source: xiaorui /

Normally, I might try to look for a silver lining after such a big plunge. But there isn’t one here. Every facet of Nio’s earnings release Tuesday screams disaster.

I’ve been bearish on NIO stock, most recently writing that if you haven’t dumped Nio stock yet, you might be running out of time. After this earnings report, my warning remains clear: NIO stock could easily end up at $0 in the near future unless something dramatic turns around. Here’s why NIO stock will continue to plunge.

A Host Of Problems For Nio Stock

It’s almost difficult to focus on any particular negative for NIO stock out of this earnings report, because the whole thing is a wreck from start to finish. The EPS figure missed expectations by a mile. Revenues declined 7% year-over-year. The company’s profit margins on vehicles are still negative; it’s losing money even before accounting for the other costs of running a company. The list goes on.

You can’t argue these are merely short-term financial problems either. The company delivered under 2,000 vehicles in August; that was far below NIO stock bulls’ expectations. And it appears September deliveries will come in even lower. Nio simply isn’t moving enough product to cover its overhead, let alone make good on its growing debts.

Canceled Conference Call Looks Terrible

One of the most surprising pieces of Nio’s earnings release was that they canceled their quarterly conference call afterwards. It’s standard practice for all medium and large U.S.-listed companies to take questions from analysts about their most recent earnings report. It’s a major part of how analysts are able to get a sense of where the company is headed in coming months so they make their financial models and price targets accordingly.

Companies that don’t hold quarterly conference calls tend to either be extremely small, or deeply shareholder-unfriendly. And once a company has earnings calls, it is nearly unprecedented for them to suspend them. Generally, companies only abandon conference calls if M&A activity is imminent, or if the company is on the verge of bankruptcy.

Nio’s decision to not hold a conference call looks terrible. And as we’ll see when looking at the numbers, bankruptcy is a real concern now for NIO stock.

Nio’s Cash Emergency

Forget NIO stock’s long-term value for a minute. Will Nio still be in business in six months? It’s an increasingly dire question that investors must grapple with. The price of Nio’s senior unsecured bonds has plummeted to just $36 from an issue price of $100. The debt is due in 2024. This means that anyone buying the bond today would nearly triple their money in capital gains and earn a nearly 13% annual interest rate on their capital along the way if Nio pays off its debt at maturity. Combined, it works out to a more than 33% annual yield at this price.

Think about that for a minute. If Nio merely stays in business, you can make gigantic profits. Why play around with NIO stock when you can get jaw-dropping returns from buying the bonds if the company can merely keep the lights on for five years? The more likely scenario, however, is that the company can’t repay its bonds in full. Bond holders would suffer some loss of capital while NIO stock owners would be wiped out entirely.

Do you think the credit market is overly worried? Think again. Nio appears to be technically insolvent — meaning that it has more liabilities than assets. They also appear to be nearly out of cash entirely; they ended Q2 with under $500 million in cash and have been burning nearly that much on a quarterly basis.

So what will be left at the end of next quarter? Analysts curious about this matter, however, couldn’t get any further details because — as I mentioned — the company decided to cancel its conference call.

NIO Stock Verdict

Let’s be clear: NIO stock is still a strong sell, even at this newly lowered price. There’s a good chance the company will run out of money, leaving NIO stock with no value. The situation is getting so bad, in fact, that Nio’s failure is leaving a blast radius. Tesla (NASDAQ:TSLA) stock knifed lower Tuesday on fears that Nio’s spectacular flame-out is a troubling sign for EVs in general. This led avid Tesla backer Ross Gerber to take to Twitter (NASDAQ:TWTR) to try to distance Tesla from Nio:

Selling Tesla because Nio sucks is absurd. That’s like selling Apple (NASDAQ:AAPL) because Samsung phones catch fire. Whatever. Tesla car sales numbers coming out next week.

Gerber added that: “Nio never had a chance. Tesla is the only one that can scale EV production.” Given Gerber’s history of overblown inaccurate predictions about Tesla’s future production and profit levels, he seems rather open to speculative investments. Yet even the fellow EV sector optimist sees little value in NIO stock at these depressed levels.

And with good reason. Nio is rapidly heading toward bankruptcy. The outcome is not yet certain, but with the bonds collapsing in value, there’s little reason to own NIO stock. Sometimes the market punishes a stock too heavily on bad results. In this case, investors are giving NIO stock its due for its truly calamitous operating losses.

At the time of this writing, Ian Bezek held no positions in any of the aforementioned securities. You can reach him on Twitter at @irbezek.

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