Lots of things haven’t gone to plan for this Chinese electric vehicle (EV) maker. NIO (NYSE:NIO) stock is now trading for $7.35 — a fraction of its previous highs.
The stock is down around 87% over three years, and 36.1% over the past 12 months. In other words, a £1,000 investment would be worth around £620 today. That’s negative 36.1%, plus a little extra due to the appreciation of the pound vs the dollar.
In other words, it would have been a pretty poor investment.
Growth slowed
The decline in NIO’s share price can be attributed to concerns over slowing production growth, debt, and other fundamental challenges, as well as broader concerns about the Chinese economy.
Investors closely monitor production figures as they reflect the company’s capacity to meet demand and sustain revenue growth.
While some aspects of the figures may look impressive, investors were certainly hoping to see NIO grow its revenues more explosively over the past three years.
For example, in the three months to March 2021, NIO reported revenues of $1.2bn. And in three months to June 2023, NIO also reported revenues of $1.2bn.
Now this figure did rise to $2.6bn in the three months to September 2023. However, clearly, the EV newcomer hasn’t delivered the growth investors were hoping for.
This can partly be traced to the impact of extended Chinese lockdowns, which deeply disrupted supply chains.
| Q1.21 | Q2.21 | Q3.21 | Q4.21 | Q1.22 | Q2.22 | Q3.22 | Q4.22 | Q1.23 | Q2.23 | Q3.23 |
| 1.2 | 1.3 | 1.5 | 1.5 | 1.5 | 1.5 | 1.7 | 2.3 | 1.6 | 1.2 | 2.6 |
Will things improve?
Despite improving delivery numbers over the past few months, NIO is continuing to burn cash at an alarming rate.
One reason for this is declining vehicle margins amid increasing price pressure from Tesla. In Q1 2021, NIO recorded vehicle margins of 21.3%. However, this has steadily declined.
Margins bottomed out in Q1 2023 at 5.1% before pushing upwards to 11% in Q3 2023. However, as a result of these falling margins, the company is burning over $500m in cash every quarter.
To date, the company has been saved by a secondary offering in Q3. This injection led to a rise in cash on hand, but will it be enough to sustain the NIO through to profitability? It’s hard to tell, given the volatility of its revenues.
And unless production is really ramped up this year, we’re unlikely to see the firm turn a profit until late 2025/2026. All eyes will be on production figures and margins as we move through Q1.
Great offering
Of course, there are reasons to be positive. NIO has a great range of vehicles — more than its Chinese peers at eight — and unique battery-swapping technology.
This technology allows drivers to change their depleted battery for a fully-charged one in just three minutes. And the swapping stations, which NIO operates, are another revenue-generating operation.
Moreover, it’s been very successful at establishing itself as a lifestyle brand, in China at least. NIO allows customers to buy a whole range of branded products from breakfast cereal, to wine and loungewear.
