NIO: The Growth Trap Snapped Shut (Rating Downgrade)

(8min)

Summary

  • Downgrading NIO from 'Buy' to 'Hold' due to persistent margin pressures and delayed profitability, despite strong delivery growth and new model launches.
  • Q1 FY2025 results showed rising deliveries but ongoing losses and missed revenue/margin expectations, with break-even still not in sight.
  • Intense price wars in China's EV market and regulatory uncertainty make near-term margin expansion unlikely, pushing positive EPS further out.
  • NIO's attractive sales multiples are offset by ongoing cash burn and likely need for further equity raises, making risk/reward less compelling.
  • Despite product appeal, NIO's management has yet to prove a profitable business model, leading to ongoing downward EPS revisions and justifying a more cautious stance.
NIO logo and the Nio"s user center, NIO House

Andy Feng

Intro & Thesis

Initially, I rated NIO Inc. (NYSE:NIO) as a "Sell" in November 2022, arguing that it looked like a classic "growth trap" with questionable strategic moves and growth prospects amid the price war intensification in the Chinese auto market.

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This article was written by

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Daniel Sereda is chief investment analyst at a family office whose investments span continents and diverse asset classes. This requires him to navigate through a plethora of information on a daily basis. His expertise is in filtering this wealth of data to extract the most critical ideas. He runs the investing group Beyond the Wall Investing in which he provides access to the same information that institutional market participants prioritize in their analysis. Learn more.

Analyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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