The causes of pessimism are varied and even though the start-up has much to do for it, its way forward will be challenging. But next year could go a long way towards clearing the air about which direction NIO is heading. For investors who are willing to live with a lot of negativity – and who don't mind extreme uncertainty – now it may be a good time to jump in.
Auto-production forces and financial problems
To understand where NIO goes, let us first review where it has been lately. The electric vehicle manufacturer (EV) started with a warm start last year with deliveries of its first ES8 premium SUV.
First two months in Q2 2019
2,213  Data source: NIO.
<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The management has said that the slowdown in China's economy – Worsened by his trade war with the United States – due to declining sales, it's only part of the story, Beijing government also scaled down its EV subsidies by 50% in March and plans to phase them out next year. for EV property in China is still much easier and usually cheaper than buying a traditional internal combustion vehicle, but the reduction in government financial encouragement has nonetheless been a near-time win. https://www.fool.com / earnings / call-transcripts / 2019 /05/28/nio-inc-nio-q1-2019-earunningcall-transcript.aspx?source=isesitlnk0000001&mrr=1.00 https://www.bloomberg.com / news / articles / 2019-03 -26 / China-scales-back-subsidies-for-electric-cars-to-spur-innovation "data-reactid =" 18 "> The management has said that The decline in China's economy – aggravated by its trade war with the US – is blamed for falling sales. However, it is only part of the story. The Beijing government also scaled down its EV subsidies by 50% in March and plans to phase out them further next year. Granted, the way to EV ownership in China is still much easier and usually cheaper than buying a traditional internal combustion vehicle, but the reduction in government financial encouragement has nonetheless been a near-time win. https://www.fool.com/earnings/call-transcripts/2019/05/28/nio-inc-nio-q1-2019-earings-call-transcript.aspx?source=isesitlnk0000001&mrr=1.00 https: // www .bloomberg.com / news / articles / 2019-03-26 / china-scales-back-subsidies-for-electric-cars-to-spur-innovation
If not enough, investors have also started to worry about the speed with which NIO inhibits cash – and rightly so. In the first quarter, the gross profit margin on cars sold was negative 13.4% (which means that the company loses money when it sells) and net loss of DKK 395m. It has not come anywhere near to achieving a profitable scale, and the fact that it outsources the manufacturing to China's JAC Motors does not help. Nine plans for its own factory (as well as its first sedan option) are on hold, so there is little visibility as to when these heavy vehicle losses cease.
NIO ES6. Image source: NIO.
The immediate way forward
But here's the good news: In June, NIO began delivering ES6 – its compact and affordable SUV – to customers. During the first quarter conference, the company said it had received over 12,000 pre-orders for ES6. This may mean that a round of sales is just around the corner.
Although we lack details of when a NIO-owned factory can come online and its sedan is paused, it is alleged that a third car setup is in the works. It will be based on the ES8 platform (which involves another SUV of some kind) and the management said it should go into production by 2020. As the EV sales have dropped too late, the cost of Customers are lower in the company's primary goal right now, which will encourage more orders and help NIOs dig out of the red.
Also, its efforts to build market shares make sense. Even as it cuts subsidies, the Chinese government continues to urge people to buy EV & # 39; by keeping the associated costs low. Some forecasts estimate that EV sales in 2025 account for about 50% of the overall Chinese automotive industry. (In 2018, 23.7 million passenger cars were sold in the country.) NIO could be in the leading position to take advantage of the long-term trend.
Thus, dark clouds have gathered around this company in 2019, where there was clear sky before in a year's time much of the uncertainty could be remedied. By 2020, NIO should have three models for Chinese drivers to choose from, and there should also be clarity about its factory plans (and lower production costs).
But even though 2020 seems likely to have a bigger promise than 2019, it is far for NIO, it does not necessarily mean that investors need to hurry and buy shares. Only those with the stomach to endure serious volatility and the ability to build a position in this automaker gradually over time – to buy dips on what will probably be a wild roller coaster ride – should even think about investing in NIO stocks.
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