Nio (NYSE:NIO) should be avoided. It’s heading to $0 this year. The last time I weighed in on NIO stock, it traded at $4.03 on March 4, and the company is still struggling to keep its head above water.
The promise of a $4 billion cash infusion was over-exaggerated. Its cash balance is not adequate to provide enough capital for the next 12 months. On top of that, auto demand has been decimated by the coronavirus.
As I’ve said before, you can find better opportunities elsewhere at the moment. This slow-motion train wreck will continue for the foreseeable future.
NIO Stock Is Heading to $0 Near-Term
Granted, the company saw temporary upside on news it was in talks for up to $1.4 billion in funds with the government of Hefei, a hub for automakers. Nio also pushed higher on plans to build headquarters, research and development and manufacturing facilities.
However, given competition from Tesla (NASDAQ:TSLA) and the company’s weak fundamentals, that won’t help NIO stay afloat.
Worse, the coronavirus has crushed electric vehicle demand in China. Auto sales could fall 25% year-over-year in the first half of 2020, according to the China Association of Automobile Manufacturers estimates cited by Wall Street Journal contributor Trefor Moss.
On top of that, the company just said there was “substantial doubt” in its ability to continue as a going concern. It’s being crushed by falling demand, reduced subsidies, and an EV market beaten silly by the coronavirus.
“Its cash balance of $151.7 million as of Dec. 31 is not adequate to provide the required working capital and liquidity for continuous operation in the next 12 months,” the company said.
NIO Posted a Wider Than Expected Net Loss
While NIO revenue was up 55% quarter over quarter to 2.85 billion yuan ($409.1 million), revenues were down 17.1% year over year on soft sales of its E6 models. Its adjusted loss was 2.81 billion yuan ($404.1 million), which was higher than the 2.45 billion yuan loss in the third quarter. However, it was lower than the 3.31 billion yuan loss posted a year earlier.
Nio also delivered 8,224 vehicles in the fourth quarter, up from 4,799 in the third quarter. For all of 2019, it delivered 20,565, which was up 81.2% year-over-year. By January 2020, deliveries fell thanks to the Chinese New Year holidays and the coronavirus. As a result, Jananuary deliveries were down 11.5% to 1,598. February 2020 saw deliveries of 707.
Going forward, NIO said it expects first-quarter deliveries to decline year-over-year to 3,400-3,600 vehicles thanks to the coronavirus. It also expects total revenue of between $173.7 million and $182.9 million, as compared to the $243.1 million posted year over year.
The Bottom Line on Nio Stock
With a sizable cash burn rate, coupled with going concern issues from the company, and the coronavirus, it’s best to avoid Nio. At this rate, NIO stock could be headed to $0. I would honestly avoid this stock at all costs. There’s nothing that can save it at this point.
I’m bearish on Nio stock, and strongly advise investors to avoid it.
Ian Cooper, a contributor to InvestorPlace.com, has been analyzing stocks and options for web-based advisories since 1999. As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.