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Proprietary Data Insights Financial Pros’ Top Chinese Stock Searches in the Last Month
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This EV Maker’s Stock is Up 40% in Two Weeks
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Consumers couldn’t get enough electric vehicles…until they could. A pandemic-induced shortage gave way to a flood of supply. Top Auto Maker Tesla saw sales start to slip year-over-year after growing at 50% annually. Yet, the fall of Chinese car company Nio (NIO) was even worse. The company’s stock has lost over 90% of its value since making a high in 2021. Despite sales continuing to climb at +30% annually, the company is hemorrhaging $195 million in cash from operations while spending another $2 billion on CAPEX. Nonetheless, investors liked what they heard from Nio’s September earnings report, making it the top-searched Chinese stock by financial pros, according to our TrackStar data. With over 10% short interest, there’s still room for more upside in this short squeeze. But how much, and is it the start of something more? Nio’s Business NIO Inc. is electrifying the automotive industry with its premium smart EVs. Since its 2014 inception, this Chinese upstart has turbocharged its way to become Tesla’s fiercest rival in China, pioneering battery-swapping tech that’s turning heads and winning hearts. From sleek SUVs to svelte sedans, NIO crafts vehicles that marry luxury with cutting-edge technology. Its innovative battery-as-a-service model slashes upfront costs, allowing drivers to hit the road without the sticker shock typically associated with high-end EVs. NIO segments its business into the following areas:
NIO’s Q2 2024 performance sent shockwaves through the industry. At a time when other EV makers are struggling, the company delivered a jaw-dropping 57,373 vehicles, catapulting its revenues to $2.4 billion – a 98.9% year-over-year surge. Yet, despite this electrifying growth, NIO still grappled with a net loss of $694.4 million. Undeterred, NIO is charging ahead with its ambitious “Power Up Counties” plan, aiming to blanket China with charging and swapping stations. In a bold move, the company also unleashed its mass-market brand, ONVO, launching 105 stores in one fell swoop. With ONVO’s first model, the L60, revving up for imminent delivery, NIO is poised to capture an even larger slice of the EV pie. Financials
Source: Stock Analysis Nio certainly has no problems with revenue growth as its latest earnings demonstrate. The problem is the company’s gross margins are a paltry 7.8% (Tesla’s are down to 17.7%), with R&D continuing to eat up 28.9% of sales. This problem is more recent, as operating cash flow was positive $310 million in 2021. Yet, that flipped to a cash burn of $561 million the following year while shrinking to a burn of $195 million in 2023. However, CAPEX climbed from $642 million in 2021 to $1.0 billion in 2022 and a whopping $2.0 billion in 2023, leaving the company’s upside down by $2.0 billion annually. That’s a problem when they have just $5.0 billion in cash on the balance sheet. However, we don’t expect the Chinese government nor any national bank will refuse to lend them additional capital when pressed. Valuation
Source: Seeking Alpha Because Nio doesn’t turn a profit nor generate cash from operations we’re left comparing the company on ratios like price or enterprise value to sales, which are both reasonable, but don’t really tell us anything. Growth
Source: Seeking Alpha The one bright spot for Nio is its sales growth. While companies like Tesla and Ford struggle with EV sales, Nio is still pounding out double digit gains. Unfortunately, that isn’t translating into profits. Li Auto (LI), a Chinese EV SUV maker, is able to achieve high growth, profits, and cash simultaneously. So, it’s not as if the bar is unobtainable. Profitability
Source: Seeking Alpha Nio’s struggles on gross margins is the tip of a profitability problem All of the other top Chinese stock searched by financial pros that trade in U.S. markets deliver profits and positive cash flow. Why can’t Nio? Our Opinion 2/10 Nio has growth. That’s about it. We question why it can’t improve its gross margins, and believe it’s a poorly mismanaged company. There are no signs this will change, and while short squeezes can send shares up quickly, we don’t see it as a worthwhile longterm investment. |
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