Succeeding in industries like Electric Vehicles (EVs) is no walk in the park. EV companies face a barrage of hurdles, from the hefty costs to standing out in a crowded market, not to mention the ever-shifting regulatory landscape. But even with all these challenges, these companies have got to have a solid plan to turn a profit.
In this regard, NIO (NYSE:NIO) has yet to reach that milestone. Despite witnessing growth throughout 2023, the Chinese EV maker, which is set to unveil its 1Q:24 earnings this Thursday, remains far from breaking even.
Indeed, despite increases in revenue and sales, NIO has seen a decline in operating profits. Even as revenue surged from $2.5 billion in 2020 to $7.8 billion in 2023, operating losses widened from -$706 million to -$3.19 billion during the same period.
This downward trend raises concerns for NIO, as noted by investor DT Invest, indicating potentially unsustainable pricing strategies for the company, even as it attempts to carve out market share.
“Ramping up deliveries deepens the company’s operating losses, and the company likely does not have any power to adjust pricing higher,” writes the investor.
“The company is burning cash at a massive pace, which we see in deep losses and mounting total debt, which increased more than three-fold over the last five years,” DT Invest added.
In addition to stiff competition from Tesla and other illustrious brands such as Mercedes, BMW, Volkswagen, and Audi, geopolitics are presenting another major headache for Nio.
Specifically, the Biden administration is taking aim at EV imports from China, with import taxes effectively doubling the sticker price for U.S. consumers.
“This is a substantial adverse development for NIO, as it apparently means that Chinese automakers are extremely unlikely to be able to compete on pricing (in the U.S.), with a 100% tariff added to the selling price,” DT Invest explained.
The European Union is also reportedly considering a similar move, which would place severe limitations on NIO’s ability to sell into the lucrative U.S. and EU markets.
DT Invest is therefore rating Nio shares a Strong Sell, while his 12-month price target of $3.15 reflects his bearish view, one that would translate into a ~41% decrease from current levels. (To watch DT Invest’s track record, click here)
However, Wall Street has a more positive take on NIO’s prospects. Nio boasts a Moderate Buy consensus rating, based on 8 Buy, 9 Hold, and 1 Sell recommendations. Its average 12-month price target of $6.66 suggests an upside of ~25% from its current share price. (See NIO stock forecast)
To find good ideas for EV stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
