NIO (NASDAQ:NIO) has been a slow-motion train wreck since its late 2018 IPO and Nio stock seems to keep finding new ways to disappoint.
Thanks to lower than expected delivery volumes, a string of earnings losses, far too many competitors, slowing electric vehicle (EV) sales in China, and news China may cut EV incentives again, things look bleak for Nio.
China wants EVs to make up a fifth of its auto sales by 2025.
To make that happen, China introduced subsidies and tax incentives for the production and purchase of electric cars. Then China turned around and started cutting those very incentives because there were far too many automakers.
Once that happened, sales plummeted. The China Association of Automobile Manufacturers just said that sales of electric, hybrid, and fuel cell cars plummeted more than 45% in October, marking four straight months of declines.
EV maker BYD (OTC:BYDDF)just reported an 89% decline in its Q3 net profits, noting that sales plummeted because of a “considerable reduction” in subsidies.
While the industry is in shambles, NIO has been the diamond in the rough.
NIO Is Bucking the Negative Trend
Over the last few days, shares of NIO jumped from a low of $1.39 to a high of $2.46.
All on the news that car deliveries for the third quarter were up 35.1% quarter over quarter to 4,799. That also exceeded the company mid-point guidance range by 499 vehicles. Better, the company is optimistic about production going forward, expecting to launch its ES3 SUV.
NIO even just partnered with Intel’s (NASDAQ:INTC) Mobileye to bring driverless vehicles to China and other markets. Under the agreement, NIO will mass-produce a self-driving system designed by Mobileye, and install the technology into its EVs.
While all of that sounds exciting, I’m not a fan of the stock with the EV market pulling back.
Earnings were a Bloodbath
In late September 2019, NIO posted a wider than expected loss, poor margins, and reports of further layoffs to reduce expenses. Analysts were looking for a net loss of 18 cents per share on sales of $184.6 million. Instead, analysts were hit with a loss of 45 cents on sales of $219.7 million.
Then NIO said it expects to post Q3 revenue of $232 million to $242.2 million. Unfortunately, that forecast was barely half of estimates calling for $558.78 million. NIO stock saw further damage when it revealed a battery recall in July 2019.
Plus, there’s a big storm of competition that’s hitting the market. Plus, the trade war isn’t helping much. In fact, it’s creating quite an economic drag on the Chinese economy. In October 2019, it was reported that China’s growth dropped to its lowest level in nearly three decades with GDP dropping to 6%.
All of that is creating the perfect storm of negativity for NIO stock. In my opinion, you can find better opportunities elsewhere at the moment. This slow-motion train wreck will continue for the foreseeable future.
As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.
