Picture supply: Getty Pictures
Electrical car inventory NIO (NYSE: NIO) has had a troublesome begin to 2024. On the time of writing, the shares have fallen over 30%, at present hovering across the $6 mark.
It was not so way back that NIO inventory was priced over $60, after driving the tech growth stock wave of late 2021. So, with the shares now buying and selling at a tenth of that worth, am I silly to not be shopping for in? Let’s take a better look.
What I like about NIO
For me, considered one of NIO’s attracts has at all times been its excessive progress. In its final full-year outcomes, the corporate delivered revenues of $6.5bn, a 37% year-on-year improve.
Extra not too long ago, for Q3 2023, NIO’s gross sales topped $2.3bn, a 46% year-on-year improve and a whopping 142% surge from the earlier quarter. If NIO can preserve delivering this type of top-line progress, I’m assured that buyers will begin to recognise its potential.
It needs to be famous that NIO will not be but worthwhile. Nonetheless, its web revenue margin expanded by 24% yr on yr for Q3, highlighting the transfer nearer to profitability. The ‘scale to profit’ technique employed by NIO will not be new. It was leveraged by Tesla for years earlier than it turned worthwhile in 2020. Primarily, the corporate makes use of debt to speed up its growth, and as soon as it achieves profitability, the returns are massive.
What continues to fret me
NIO is a quick grower. Nonetheless, there are nonetheless quite a few warning indicators that fear me.
Firstly, NIO is a Chinese language-based firm. China’s financial efficiency has come beneath scrutiny during the last yr, with many analysts downgrading its efficiency. A key indicator of this was two of China’s largest property builders defaulting on bond funds in late 2023. Put extra merely, China’s fast financial growth is about to gradual, and this might prohibit NIO’s home demand.
On the opposite aspect of the pond, stress stays excessive between China and the US. Points over commerce persist, and with Trump main election polls, the US might take a harder-line stance on China sooner or later. This might harm NIO’s potential to broaden into America, a key electrical car (EV) market.
Lastly, international rates of interest have considerably climbed during the last 12 months. NIO has over $4bn in debt on its steadiness sheet. With charges anticipated to stay excessive for almost all of 2024, the EV producer must shell out thousands and thousands of {dollars} in curiosity funds – an issue that it didn’t have within the low-rate setting of the final decade. This might place extra stress on NIO’s path to profitability.
A purchase at $6?
NIO inventory does look low-cost. It’s additionally rising at an encouraging charge. Nonetheless, for me, there are too many obstacles forward, even at $6. Despite the fact that the inventory has fallen 30% this yr, it doesn’t imply that it gained’t fall one other 30%! For that motive, I gained’t be shopping for at present.
