Electric vehicle manufacturer Nio (NYSE:NIO) had a challenging year in 2023. China’s uneven recovery from Covid-19, waning EV demand and fierce competition in the new-energy vehicle space created problems for Nio. Looking ahead to 2024, investors shouldn’t expect any miracles and NIO stock only deserves a less-than-stellar “D” grade.
As you may recall, Nio posted a 4,556.7 million RMB ($624.6 million) net earnings loss in this year’s third quarter. Nio’s net loss increased compared to last year’s quarter, a red flag for the company. Nio’s management likely desires profitability or reduced earnings loss. This can help explain Nio’s recent news items, which we will discuss soon.
Is Nio’s Battery Production Unit a Failure?
Nio, according to a Reuters report, is planning a spin-off the company’s battery production unit. This may be an attempt to help Nio become profitable.
Some investors might cheer this news item, but think about the implications. First of all, a planned spin-off suggests that Nio’s battery manufacturing unit may be failing. After all, if it were successful and could help Nio improve its financials, the company wouldn’t be eager to get rid of this business unit.
Divesting its battery production unit means that Nio will lose an opportunity to control its supply chain. Nio will lose some highly qualified engineers, and will have to fully depend on external businesses for EV batteries. Overall, it’s not a positive sign Nio is reportedly scrapping its in-house battery production division.
Potential Layoffs Don’t Bode Well for NIO Stock
Speaking of bad signs, Bloomberg and Reuters reported that Nio’s workforce may shrink soon. Specifically, after already disclosing plans in November to slash the company’s workforce by 10%, Nio may impose even more job cuts beyond that.
The previously announced 10% workforce reduction was already a red flag, and it’s a major sign of trouble if Nio is quickly following that up with more job cuts. This may be another way for Nio to attempt to achieve profitability, but it reeks of desperation.
Deep job cuts could have a negative impact on Nio’s ability to produce vehicles, research and develop new vehicle models, provide good customer service and maintain morale within the company. As Reuters stated, some of Nio’s departments “were asked to prepare reserve lay-off lists, which may widen the original dismissals to 20% to 30% within the unit.”
That would translate to a lot of layoffs, and it’s hard to imagine that morale would be high in units where the management is preparing “layoff lists.” Therefore, skeptical investors won’t necessarily view Nio’s workforce reductions as good news for Nio.
2024 Could Be a Dead-Money Year for NIO Stock
Nio’s financials certainly aren’t perfect, and the company’s battery production unit may be failing. It’s not encouraging that Nio might announce deeper workforce reductions after already having disclosed layoff plans in November.
All in all, it sounds like Nio is taking desperate measures to narrow its profitability gap. Consequently, it’s understandable if prudent investors are wary of Nio in the coming year. In the final analysis, NIO stock gets a “D” grade and isn’t a highly recommended pick for 2024.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
