- Nio (NIO) reported a drastically widening earnings loss and contracting margins.
- The problem isn’t a lack of vehicle deliveries but excessive spending.
- Investors should consider NIO stock a no-go until the company’s bottom-line financials improve.
Shares of China-based electric vehicle (EV) manufacturer Nio (NYSE: NIO) might look cheap, but are they really? NIO stock traders should exercise caution now, because Nio’s impressive EV-delivery figures aren’t bringing the company any closer to profitability.
Not long ago, Nio seemed to struggle with its EV sales. The company’s 8,506 vehicle deliveries in January 2023 compared unfavorably to the 9,652 from January 2022 and the 15,815 from December 2022.
However, a more recent announcement indicates robust delivery data for Nio. This doesn’t necessarily mean that Nio is in great financial shape, though. Unfortunately, a deep dive into Nio’s vital stats will reveal that a near-term share-price comeback is unlikely.
Investors Should Be Realistic With NIO Stock
First and foremost, we should define what a “comeback” would mean in 2023. Bear in mind, NIO stock has previously traded above $60. This year, however, $60 is unrealistic as the Nio share price recently traded below $10.
On the other hand, certain data points from Nio’sfourth-quarter 2022 results might spur investors’ optimism. If they cherry-pick certain statistics, Nio’s shareholders may conclude that a huge comeback is imminent.
In particular, the bulls could point to Nio’s vehicle sales of 14.76 billion RMB ($2.14 billion), up 60.2% year over year (YOY). This resulted in a 62.2% YOY increase in Nio’s revenue, to 16.06 billion RMB ($2.33 billion).
Thus, eager investors may assume that NIO stock should have no problem gaining 50% or 60%, reaching $15 or $16 in 2023. Is this a reasonable conclusion, though?
Nio’s Net Loss and Margin Contraction Are Problematic
Cherry-picking favorable data points can lead to hasty inferences. Therefore, let’s take a look at some more fiscal facts pertaining to Nio’s fourth-quarter performance.
Sure, Nio demonstrated improvement in its vehicle deliveries. However, the company also ramped up its expenditures. In Q4 2022, on a YOY basis, Nio’s selling, general and administrative expenses increased 49.6%. Meanwhile, the company’s research and development expenses rose 117.7%.
Consequently, Nio’s spending appears to have outpaced the company’s ability to generate revenue. Nio’s comprehensive loss attributable to the company’s ordinary shareholders more than doubled YOY to roughly $6 billion RMB ($869.97 million).
Additionally, Nio reported a non-GAAP net loss per American depositary share (ADS) attributable to the company’s ordinary shareholders of 3.07 RMB. This result missed the analyst consensus estimate of a per-share loss of 1.83 RMB.
On top of all that, Nio’s margins collapsed. The company’s vehicle margin contracted to 6.8% in Q4 2022 from 20.9% in the year-earlier quarter. Moreover, during the same time frame, Nio’s gross margin shrank to 3.9% from 17.2%.
A Comeback in NIO Stock Is Unlikely
Now, you have a more complete picture of Nio’s financial profile. The company demonstrated improvement in its EV sales, but this didn’t translate to healthy margins. Also, Nio’s rapid spending appears to have contributed to the company’s widening earnings loss.
There’s a lesson here about what can happen if you focus on a few data points but ignore the others. You might end up making unfounded assumptions, and this could lead to hasty stock trades.
So, be sure to read all of the fine print before considering an investment in Nio. At the end of the day, you’ll probably choose not to buy NIO stock, as a share-price comeback isn’t likely to happen anytime soon.
