Even though Nio (NASDAQ:NIO) is a disappointing investment for speculators, the company posted strong third-quarter deliveries. It is also continuing developments in its self-driving program. But after many short bursts of rallies that temporarily lifted Nio stock only to fade afterward, investors are understandably cautious.
Nio posted a 35.1% sequential increase in deliveries on Oct. 8. Of the 4,799 vehicles delivered, 4,196 were ES6s and 603 were the more expensive ES8s. Nio beat its guidance range by ~12% (499 vehicles). The stronger numbers lifted Nio stock price slightly, but not by much.
Investors now expect more sales from the company. With a population of 1.386 billion in China, investors consider Nio shipping 4,799 vehicles quarterly as unimpressive.
Still, Nio posted strong September deliveries, with a positive boost ahead of the National day holiday in China. Backlog also improved, suggesting Nio’s investment in a more expansive sales network is paying off.
Macroeconomic Headwinds and Nio Stock
Ongoing worries over the U.S.-China trade tensions continue to weigh on Nio. Although it would have been unlikely, had the two countries ironed out a trade deal that cut or removed tariffs, Nio would likely have soared. But the market is looking forward and expects the trade tensions may hurt the Chinese economy.
This will lower the disposable income of Chinese customers and limit sales of Nio EVs.
To adjust for the unfavorable economic conditions, Nio started offering better prices for the ES6 standard version at the end of September.
This month, it will start including an 84-kWh battery pack for the ES6 and ES8, increasing its driving range to 510 km and 425 km, respectively. If these changes resonate with the fragile, price-sensitive consumer, Nio may start benefiting from stronger demand in the upcoming year 2020.
Elevated Bearishness
Per finviz, the short float on Nio is 20.93%, as bears bet the company’s business model will continue deteriorating. Yet a $200 million cash infusion from Tencent eliminates the short-term risk of bankruptcy. The bond issuance benefits debt holders but hurts shareholders through future dilution.
Still, the alternative option is worse if Nio runs out of money, and the interest cost on the notes sale to Tencent is manageable. The first tranche is convertible into Nio stock at $2.98 per ADS. The second tranche matures in three years and is convertible into Nio stock at $3.12. Nio pays premiums at 2% and 6% of the original amounts, respectively.
Nio proceeded to spend its cash smartly on R&D. On Oct. 14, the company launched an updated NIO Pilot, its advanced driving assistant system. New features include auto lane changing and traffic jam pilot.
EV investors could hold Tesla (NASDAQ:TSLA) instead whose market cap is around $45 billion. At 25 times the size of Nio, Tesla has more loyal investors willing to ride the volatility. But the short float on TSLA stock is equally high at 25.51%.
Tesla’s primary market is in North America but it is expanding manufacturing in China. Conversely, Nio’s sales depend exclusively on China.
Your Takeaway
Nio stock remains risky speculation that could potentially pay off if investors decide to increase their position in China-listed stocks. Q4 is potentially a turnaround period if demand for the ES6 and ES8 grow once again.
After offering more battery capacity and updated software, don’t count Nio out of the EV market just yet.
Disclosure: As of this writing, the author did not hold a position in any of the aforementioned securities.
