Nio Stock’s drama bodes ill for investors – Investorplace.com

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Month after month, Nio (NYSE: NIO) stock market investors are holding out, hoping for a sign from the company that they are on the right track. The company has so far given them little confidence.

The bizarre race in Nio Stock is over: get out now

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The headlines on Nio have been one red flag after another. China recently extended major tax credits for electric vehicles to 2022. But before the owners of Nio’s shares could even applaud the news, the company announced that its director of electrical transmission engineering had left the company.

China supports electric vehicles

Nio shareholders received good news from the Chinese government last week. China has announced that its EV subsidies which were to expire this year will be extended until 2022. In addition, China will extend its 0% sales tax on EVs for two years. Buyers of Chinese combustion vehicles pay a 10% purchase tax.

Clearly, China is stepping up its efforts to support Nio and the electric vehicle industry in general. In 2019, sales of new energy vehicles (NEV) in China fell 4% compared to 2018. In February, amid the madness of COVID-19, sales of new energy vehicles in China decreased by 75% compared to the previous year.

Bank of America Analyst Ming Hsun Lee says he expects local subsidies for electric vehicles to return to parts of China this year.

“In our view, the support policies of the Chinese government will be positive for business development, pricing (relieve pressure) and working capital of electric vehicle value chain companies such as CATL (EV battery), EVE Energy (EV battery), Yunnan Energy (EV battery separator), BYD (EV and EV battery) and NIO (EV brand) ”, explains Lee.

It’s always good for the government to have the back of a business. However, as I said before about Ali Baba (NYSE: BABA), it is particularly good for the Chinese government to have your back to a business.

Beijing exercises strict control over its markets. This often makes it difficult for international companies to compete with local companies in China. Given Nio’s difficulties, he could certainly use the help.

No more drama for Nio Stock

Unfortunately, while China is doing everything it can to help the electric vehicle industry, Nio is still struggling to get his ducks away.

Nio recently confirmed the departure of its vice president of user development and its director of electrical transmission engineering. Management’s latest sales cycle comes after the company set extremely ambitious financial targets when it called for fourth quarter results. Management has said it expects the company’s losses to decrease 35% in the first quarter compared to the fourth quarter. He also promised positive gross margins in the second quarter.

On the surface, these goals may seem to be a sign that the company is finally taking profitability seriously. However, Nio has already made these types of commitments before, and it is not the first time that the company has reshuffled management to try to solve its problems.

Nio’s fourth quarter sales figures were not particularly encouraging. Its turnover is down 17%. The company’s $ 406 million operating loss was an improvement from its loss of $ 509.5 million a year earlier. But Nio ended 2019 with a surprising cash balance of just $ 161.7 million.

So far in 2020, Nio has raised enough new capital to keep the lights on for the time being. A series of three private placements in February and March raised $ 435 million. Nio also announced a vague cooperation agreement with the city of Hefei valued at $ 1.42 billion, but details of the agreement are unclear.

How to play NIO Stock

Lee is optimistic about the impact of Nio’s cost reduction initiatives.

“We believe that the fundamentals of NIO have reached their lowest level, and the current valuation seems fair to us,” says Lee.

In other words, things should not get worse for Nio investors. At the same time, Bank of America’s “neutral” rating and its price target of $ 3.30 do not instill much confidence in the improvement of things.

There are reasons to be optimistic. China is the largest emerging market economy, and there is no doubt that electric vehicles will play a huge role in its future. Unfortunately, sort of, Nio just can’t seem to do it.

If Nio survives its capital crisis, the stock could easily jump 1,000% over the next five years. But this result is far from certain, since it is on the verge of insolvency.

I don’t necessarily think it’s crazy to buy Nio shares. The important thing for those who pull the trigger is to realize that it may be closer to a lottery ticket at this point than Ford (NYSE: F) Stock.

The Bottom Line

A bet on the Nio share is a bet that all of the company’s activity will change. It’s a gamble that Nio will find a way to always be profitable and will do so before his capital increases completely take the price of his stock.

If you’re looking for a way to invest in the long-term transition from the global auto industry to electric vehicles, look elsewhere. If you are looking for a fun and potentially lucrative way to play on a volatile stock market, NIO has the potential to make huge gains in the long run.

Wayne Duggan has been an American contributor to News & World Report Investing since 2016 and is a writer at Benzinga, where he has written more than 7,000 articles. Mr. Duggan is the author of the book “Beating Wall Street With Common Sense”, which focuses on psychological investing and practical strategies to outperform the stock market. At the time of this writing, there was long BABA action.

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