NIO Stock: Woes Multiply, Survival Struggle Continues

Today, NIO (NIO) announced that its CFO, Louis Hsieh, resigned. The company cited “personal reasons” for the resignation. His resignation will be effective on Wednesday. The company also stated that it “has commenced the search for Mr. Hsieh’s replacement and is committed to moving quickly to fill the role.” The stock is under pressure due to a series of bad news. NIO is an EV pioneer and Tesla’s (TSLA) equivalent in China.

Why NIO’s CFO resigned

The company cited “personal reasons” for Hsieh’s resignation. However, National Business Daily of China stated that “the abrupt leave is likely related to NIO’s new financing strategy.”

A string of high-profile departures amid the company’s deteriorating fundamentals drove the stock down. NIO was trading with 4.6% losses at 9:50 AM ET today.

Stock’s woes keep piling up

NIO’s woes keep piling up. In September, the company released its second-quarter results, which were worse than expected. Also, the company’s guidance for 2019 didn’t meet analysts’ expectations. These company-specific factors and China’s decelerating EV market led to a huge sell-off in the stock. NIO stock is trading 44% lower since it released its second-quarter results on September 24. The company’s year-to-date losses have increased to 76%.

Battle for survival continues

After weaker results and poor guidance, NIO’s battle for survival intensified. The company’s cash burn became the central issue. In NIO Battles for Survival, Not Profitability, we discussed how the company will keep struggling due to its high cash burn rate, rising competition, and no solid future plan.

Analyst downgraded NIO stock

Many analysts downgraded NIO stock. Morgan Stanley (MS) downgraded the stock from “overweight” to “equal weight” on September 26. Wolfe Research also downgraded the stock from “outperform” to “peer perform” on the same day. Goldman Sachs (GS) downgraded NIO from “buy” to “neutral” on October 4. The firm also reduced the target price by 85% to $1.47. Please read NIO’s Deliveries Impress, but It’s Not Out of the Woods Yet for a detailed discussion of analysts’ ratings for NIO following its second-quarter results.

Tesla will be a bigger threat for NIO stock

In contrast, Tesla seems to be thriving in China. The company already started trial production runs for its China-made Model 3s in China. Tesla’s China sales are rising, according to Piper Jaffray. CNBC reported that Tesla’s China deliveries rose more than 175% in the third quarter compared to the same quarter last year. With the start of Tesla’s China Gigafactory, NIO’s competition will likely increase. Read How NIO Is Failing Where Musk’s Tesla Is Thriving to learn more.

Survival woes to continue

With subsidies mainly gone, Chinese automakers—especially EV makers—struggle to generate profits. NIO is also battling a cash crunch situation. The pressure on the stock will likely continue if the company doesn’t articulate a sustainable profit strategy and address its cash concerns.