The NIO (NYSE:NIO) share price saw a bubble form after Covid-19, rising 2,465% from March 2020 to January 2021. However, it’s tumbled over 85% to its current value since then.
Could this be a classic boom and bust scenario, or is this a great value opportunity waiting for me?
What is NIO?
For those who don’t know, NIO is a relatively new Chinese electric vehicle (EV) company founded in November 2014 in Shanghai. Management took the company public on 12 September 2018.
The company’s notable car models include electric SUVs and saloons. Its distinct advantage is battery-swapping technology, allowing for a full charge in just a few minutes.
The organisation also invests in lifestyle products and autonomous driving. It currently features advanced driver assistance systems (ADAS) in its cars.
I sifted through a range of annual reports, website presentations and financial analyses on the company. My initial outlook on NIO is that there are financial concerns, but it offers compelling brands.
The core financial points
NIO isn’t profitable at the moment and is in the stage of using debt and shares to fund its growth. While it has revenue, it’s spending more than its income stream on business costs.
This doesn’t necessarily mean the company is a bad investment, but it’s much more difficult to analyse a company like this in relation to its competitors. The reason is the data presents itself differently.
For example, the company has an operating margin of -42%, worse than 94% of 1,260 companies in the vehicles and parts industry. But NIO has also been around for a lot less time than most of those companies.
This could be warranted if the business model is still in a nascent, high-growth stage. The company looks to be in this developmental period when I look at the three-year revenue growth rate of 58.6%. Now, that’s better than 98% of 1,206 companies in its industry.
Future operations
It’s an organisation focused intently on the future, and I wanted to know what it had in store for investors regarding its operations.
Most notably, the company is looking to expand internationally beyond China. It started with the European market in Norway and it would like to potentially work in the US.
Its autonomous driving system, NIO Pilot, will arguably take centre stage in the coming years. With companies like Tesla looking to enter the autonomous taxi market, I find it interesting that NIO has also expressed some interest in this.
Part of my concern for NIO is that it will face stiff competition from dominant EV players like Tesla and domestic Chinese manufacturers that are more established, like BYD.
The company will also face many regulatory hurdles if it plans to take autonomous capabilities to their limits.
Could the shares rebound?
The shares look cheap to me, but I think an investment in NIO is quite risky.
While its revenues have increased from $719m in 2018 to $7.7bn today, it’s the net income I’m more worried about. That was -$1.4bn in 2018 but is -$3bn today.
We haven’t had evidence of profitability yet.
For that reason, I’m not investing. It seems too risky for me.
