With all the attention it receives on social media and in the mainstream financial press, it would be easy to assume that Tesla (NASDAQ:TSLA) has been the best-performing electric vehicle equity over the past few weeks.
Indeed, a return one-month return of 34.7% is impressive, but trails the 80.3% returned over the same period by NIO (NYSE:NIO). Granted, comparing Nio and Tesla isn’t necessarily apples-to-apples, but on its own, Nio stock merits attention. More than tripling since the start of the fourth quarter will get some investors interested, particularly at the still-low price points at which the stock resides.
Last Friday, Nio stock jumped almost 7% on volume that was nearly twice the daily average amid speculation the Chinese EV maker is close to procuring $1 billion in financing GAC Group, perhaps Nio’s own version of Elon Musk’s now infamous “funding secured” tweet. Amid the run-up in the stock, Nio actually commented on the chatter, reminding investors that no funding had actually been secured as of yet.
“The Company responded that it has explored financing and strategic opportunities with Guangzhou Automobile Group, and all commercial discussion remains preliminary and no definitive agreement has been entered into between the parties,” according to a Jan. 15 statement from Nio. “Therefore, the Company will not comment on market speculations.”
Rumors Get Bought, News Gets Sold
Assuming GAC, or anyone for that matter, steps up to the plate and loans a billion to Nio, that’s meaningful for a company with a market capitalization of $3.69 billion (as of Jan. 27) and one with significant cash burn issues.
As my InvestorPlace colleague Thomas Niel noted last week, Nio’s corporate debt trades for just 47 cents on the dollar. Applying the adage that credit leads equity, Nio stock’s recently bullish performance belies what debt markets are saying about the health of the Shanghai company. In other words, there is some risk here, particularly if the aforementioned GAC investment doesn’t come to fruition. If investors are left disappointed on that front, it would be the perfect reason to take profits following the stock’s recent surge.
That puts some burden on the company to meet-and-beat delivery and sales guidance this year, something Nio showed it’s capable of doing in December, demonstrating the steps it is taking to shore up its position in its China home market.
“As of now, NIO has established 22 NIO Houses and 55 NIO Spaces in 57 cities, and plans to expand the total number from the existing 77 to about 200 by the end of 2020,” reported China Car News, citing Nio Vice President Wei Jian.
Nio House is a more luxurious spin on the company’s “Spaces” concepts. Nio Spaces outlets are designed to be more efficient with lower rents and more sales staff to move more product. The company was slated to open seven more of those locations throughout China on Jan. 18.
Those efforts should have some impact later this year, but investors are going to be wanting to hear over the near-term is that fourth-quarter sales beat estimates and the first quarter will bring another increase. When Nio reported third-quarter results on Dec. 30, the company forecast deliveries of 8,000 vehicles for the last three months of 2019, but the company delivered 3,170 vehicles alone in December, indicating that upside surprises are possible for the upcoming earnings report.
Bottom Line on Nio Stock
For those that have missed out on the recent Nio stock rally, buying here is risky, but not necessarily a ticket to ruin. Any combination of new financing, increased sales, more-robust delivery projections or lower losses could fuel more upside for the stock.
What Nio needs to do this year is, obviously, lose less money and prove to investors that it’s adequately capitalizing on rapidly expanding market. It is estimated that two million electric vehicles were sold worldwide last year and that figure could grow to 37 million units in 2024, but Nio has to make it that far to take advantage of that exponential growth.
As of this writing, Todd Shriber did not own any of the aforementioned securities.
