Nio (NYSE:NIO) signed a supply agreement with Shanghai Baolong Automotive as it seeks to become more self-sufficient. NIO stock is up about 1% this morning.
Baolong will initially supply things like air springs and air tanks. In the future, it may deliver sensors and cameras and even work on body and environmental sensors. Baolong currently supplies air suspension equipment to Li Auto (NASDAQ:LI).
NIO stock opened trading this morning in New York at $7.54 per share, a market capitalization of about $14 billion.
Nio’s Self-Sufficiency Drive
Nio has been working to become self-sufficient and reduce costs after losing $35,000 for each car it sold in the second quarter.
This includes buying factory assets from its contract manufacturer, JAC Motors.
Nio tied itself to JAC in 2020, taking $1.4 billion from the local Hefei government and tying itself to the local supply chain. Total government support that year came to $2.6 billion, according to The New York Times.
A Morgan Stanley analyst believes it would make “strategic sense” for Nio to buy the JAC assets. The question is whether the electric vehicle (EV) company can afford the purchase. Analyst Tim Hsiao, who has rated the stock “overweight,” believes it can.
The key question for Nio going into earnings on Nov. 9 is whether it can cut its cash burn rate. Nio had an operating cash loss of about $452 million during the second quarter, based on the current dollar-yuan exchange rate. It ended the quarter with about $4.3 billion in cash, half what it had a year earlier.
NIO Stock: What Happens Next?
Nio is trying to unwind itself from state control. But it needs to limit its losses if it’s to maintain state support. That support is contingent on success in its drive to export cars and its battery swap technology to Europe.
As of this writing, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
