NIO (NYSE:NIO) stock was changing hands for $3.51 in the first week on January 2020. It’s worth highlighting that it was a volatile week as the world learned more about the respiratory virus that was sweeping across China — and would later be known as Covid-19.
One year later, the stock was trading around $57, marking a 1,500% increase over 12 months. However, the bull run wasn’t to last. Today, it trades around $7.89. This may be a 124% increase from the start of 2020, but it’s a huge decline from the stock’s heights.
So, if I had invested £1,000 in NIO shares in early 2020, today I’d have around £2,300, taking into account the 124% increase in the share price, plus an appreciation of the dollar versus the pound (NIO’s US-listed shares are denominated in dollars).
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What’s behind the fall?
The Chinese EV manufacturer has failed to live up to investors’ expectations. NIO’s vehicle deliveries have been trending lower, with the company reporting a 10% decline in deliveries in the third quarter of 2023 compared to the second quarter. This decline was attributed to several factors, including supply chain disruptions, production hiccups, and increased competition from other EV makers.
Moreover, the EV market is becoming increasingly crowded, and carmakers are resorting to price cuts to gain an edge over their competitors. NIO has been forced to follow suit, which has hurt its gross margins and profitability.
In addition, in September 2023, NIO issued $1bn worth of convertible bonds, which can be converted into shares of the company. This move was seen as a way to raise capital without diluting existing shareholders’ equity. However, it also added to the potential for dilution in the future, which could further weigh on the stock price.
Worth buying today?
NIO remains a highly exciting investment prospect that relentlessly innovates and enhances its premium EV portfolio.
However, its Tesla-like growth trajectory was abruptly halted by Chinese lockdowns. NIO and its competitors undoubtedly lost ground to Tesla.
Part of its attraction lies in its range of vehicles, as well as it’s unique battery-swapping technology. This allows drivers to pull up at a NIO station and exchange their empty batteries for full ones in just a matter of minutes.
However, there are concerns, and having been very bullish on NIO once, I’m recognising these concerns more readily today.
Debt currently stands at $4.2bn. And with the Chinese economy slowing, and margins compressed, the outlooks isn’t as rosy as it once was.
On the plus side, analysts are anticipating forward revenue growth of 26.1% annually, in addition to operating cash flow growth of 61.3%. Meanwhile, its price-to-sales ratio is just 1.78, far below Tesla at 8.3.
I’m certainly tempted to repurchase shares in NIO. It’s unique battery-swapping tech and use of novel technology means it’s range of vehicles stands out from its peers.
But for now, I’m going to keep this one on my watchlist.
