NIO: Still a Huge Gamble
Updated: Jan 28, 2020
In its recent Q3 earnings report, NIO (NYSE: NIO) achieved slightly better results over its past quarter with reduced losses. As a result, share price rose to a high of $4.70+ per share. However, NIO has yet to break even so a loss is still a loss.
Two main problems with the business:
1. Negative Income
Since IPO, NIO has yet to be a profitable business as its losses always exceed total revenue. At this point, NIO had declared that it will soon run out of funds to operate for the next 12 months and began to come up with initiatives to raise capital.
2. Cars sold at a loss
Although the number of car sales climbed slowly, NIO was still making a loss of -6.8% margin for every car sold.
Right now, NIO still has so much to do in order to completely turn things around. Not mentioning the highly competitive China EV market along with other prominent EV players such as BYD, Tesla etc. It is definitely not going to be an easy feat moving forward. NIO remains to be a high risk yet high reward investment.
I bought NIO near its 52 week low thinking that it has value through its never ending innovation (new 100 kWh battery) and over 500 patents (patent isn't cheap). At the same time, NIO is trying to expand its product range (new EC6 SUV) to capture greater market share. Well, 30,000 people were willing to give NIO a try. Doesn't that mean something?
To be frank, based on my past experience working in Automotive industry, what I can say is profit margins are often narrow. What makes up for the marginal profit is aftermarket sales. So, I presume that NIO's strategy is to obtain as big of a pie now in this growing demand for electric cars. Establish the brand and build trust in consumers. Hopefully, NIO is able to endure this tough period and emerge stronger. Like what we Chinese like to say, "first bitter then sweet".
Until then, I will take this chance to cash in some profits. Though the invested amount was small (too high risk for my appetite), a win is still a win!