Nio (NIO), the Chinese electric vehicle (EV) maker, is set to report its Q4 results tomorrow. The company’s stock has experienced a dramatic decline, plummeting 92% since its peak in January 2021 and an additional 27% over the past year. Nio has faced significant challenges in scaling its vehicle deliveries profitably, resulting in substantial cash burn and multiple equity offerings that have diluted shareholders. Consequently, the share price is now approaching penny stock levels.
If you wish to read more extensively on Nio’s preparations for its earnings report, I recommend reading what our analyst at Tipranks wrote about the company right here.
What Nio Needs to Show Investors
Along with Nio’s well-documented struggle, the company also has a history of missing earnings expectations, and its growth story hinges on effectively scaling production. Achieving positive free cash flow and managing working capital efficiently is crucial for Nio to reach breakeven by 2026. In the previous quarter, Nio’s CEO, William Li, indicated that the company aims to break even on a full-year basis by 2026. This projection assumes that 2025 will continue the trend of narrowing losses, driven by rising shipments and spending cuts. If successful, this would mark a significant turning point for Nio, which has seen its market value drop from $75 billion at the peak of the EV hype in 2021 to just under $9 billion today.
More important than reaching breakeven is becoming cash flow positive. Cash flow is crucial for Nio as it reduces the need for further capital raises, which dilute shareholders. In Q3, Nio achieved positive free cash flow, partly due to a $370 million decline in working capital. Investors were relieved to hear that Nio had no immediate plans to raise capital, especially considering the fate of Nikola, another EV player who aggressively diluted shareholders before filing for Chapter 11.
Hopes for Growth
Nio’s expansion into the European market has been underwhelming, with its pricing on par with Porsche. However, Nio’s low-cost brands, Onvo and Firefly, offer hope for growth. The company aims to double its 2024 deliveries, but it remains uncertain whether these brands will gain traction internationally.
Analysts expect Nio to generate $9.39 billion in revenue for FY2024 and grow to $13.4 billion in FY2025. Despite skepticism about Nio’s plan to break even by 2026, a $0.66 per-share loss that year would represent an impressive EPS CAGR of around 30%.
To beat market estimates for Q4, Nio needs to report a net loss of less than $0.36 per share and revenue of $2.7 billion. Investors should watch for positive cash flow without relying on reducing working capital. As a high-beta stock, Nio is expected to see significant volatility post-earnings, with the market pricing in a ~10% move.
What Is the Price Target for NIO?
Turning to Wall Street, Nio is considered a Hold, based on six analysts’ ratings. The average price target for NIO stock is $5.25, implying a 17.71% upside potential.
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