NIO Stock: Flat Deliveries Pressure China’s EV Maker

NIO (NIO) reported its November delivery numbers today. The company delivered 2,528 vehicles during the month. This implied almost flat month-over-month growth over October’s delivery of 2,526 vehicles. November also represented the fourth consecutive month of rising deliveries for the company. Despite this, NIO stock plummeted today.

China rolled back EV subsidies

Investors should note that after China rolled back its EV (electric vehicle) subsidies in June, NIO’s deliveries took a tumble. In July, the company delivered just 837 vehicles. Apart from the subsidy rollback, its battery recall of 4,803 ES8s in July impacted its deliveries.

Of its total deliveries in November, the company delivered 2,067 ES6s and 461 ES8s. ES6 is NIO’s five-seat high-performance SUV, while ES8 is its seven-seat SUV.

CEO on November deliveries

NIO CEO William Li noted, “In November, we achieved another month of solid delivery results as we expanded our sales network by adding more NIO Spaces.” He added, “Our strong sales performance was also attributable to the competitiveness of our ES6 among all premium electric SUVs and the passionate endorsement by our existing users.”

A new SUV

Bloomberg reported yesterday that NIO had launched its third SUV, which is “aimed at spurring demand in China’s slowing EV market.” In addition to this latest launch, the company has been trying other ways to revive its sales and to maintain its long-term viability.

At the beginning of November, the company announced its collaboration with Intel’s (INTC) Mobileye for bringing highly automated and autonomous vehicles to consumer markets in China and elsewhere. NIO’s stock surged by about 25% on this news.

NIO’s YTD stock performance

NIO stock has lost about 62% of its value year-to-date. This poor stock performance is due to the challenging macroeconomic environment as well as the company’s own issues. China’s auto sales declined for the 15th month of the last 16 months in October.

However, NIO’s second-quarter results underwhelmed the market’s expectations and also set a tone for a bleak outlook. In addition, the company’s cash troubles disappointed investors. During its second quarter, the company burned $617 million in cash and cash equivalents out of $1.12 billion at the end of the first quarter.

In November, NIO announced the appointment of a new CFO, who is expected to help weather the company’s current financial storm. Without a continuous cash infusion, we believe it could be hard for Nio to survive much longer. Plus, financing deals have been elusive for the company yet.

The challenging operating environment for NIO’s stock

In addition to these issues, the competitive environment in the Chinese EV market is getting fiercer. Notably, foreign companies such as Ford (F), Volkswagen (VLKAF), and Toyota (TM) have announced their respective EV plans for China.

On the other hand, Tesla (TSLA) has taken the competition to another level by building a factory in China. It is awaiting the final permits to start delivering China-made Model 3s to its Chinese customers. As Tesla’s costs come down with domestic production, we expect it to become an increased threat to NIO and other Chinese EV makers.

Amid all these issues, a few months of rising deliveries might not do much to move the needle on NIO’s stock. Even after delivering slightly higher deliveries today, NIO was trading 5.2% lower at 1:50 PM EST. In our view, the company needs to address its cash and profitability concerns and offer investors a long-term sustainable path.