Nio (NYSE:NIO), which at one time traded for as much as $62.84 per share, now trades for under $5 per share, putting NIO stock firmly in penny stock territory. However, investors have rightfully bailed this China-based EV manufacturer. I’m referring to more than just fair weather fans of the stock.
As InvestorPlace’s Eddie Pan reported last week, Baillie Gifford, one of Nio’s largest institutional shareholders, sold nearly 84% of its position. This is not surprising. The company’s growth has continued to decelerate. Looking at the latest results and delivery numbers, it’s clear that this trend isn’t likely to reverse course anytime soon.
NIO Stock and its Lackluster Losing Streak
Back in January, I discussed how Nio had a utterly lackluster 2023. As you may recall, the EV maker hyped up a late-year growth resurgence that never happened. Full-year deliveries fell far short of initial forecasts.
If that wasn’t bad enough, rising competition in the Chinese EV market had a negative impact on operating performance as well.
After first trying to be a conscientious objector to the EV price wars, Nio eventually entered them. This may have helped to stabilize sales, yet it also led to declining margins and widening losses.
Given Baillie Gifford disclosed its reduced NIO stock position in late March, it’s possible that the firm decided to bail on its position following the company’s Q4 and full year 2023 earnings release early last month.
Although Nio reported year-over-year deliveries growth of 30.7% in 2023, net losses came in at nearly $3 billion. This represented a 43.5% increase compared to reported losses in 2022.
During the first quarter of 2024, Nio reported a big sequential drops in vehicle deliveries during both January and February. While monthly deliveries bounced back in March, this is hardly cause for celebration.
Expect More of the Same
Nio’s monthly deliveries may be stabilizing, but don’t assume this will help drive a comeback for NIO stock. With deliveries growth falling far short of initial forecasts during Q1 2024, revenue growth is likely to underwhelm as well.
As for the quarters ahead, it’s important to note that Chinese industry growth is expected to decelerate further during 2024. Add in other negatives, like competitive challenges, and it’s hard to see the company meeting analyst consensus ($9.74 billion) for 2024 sales, but less beating it.
With sufficient top-line growth, narrowing losses is going to be difficult. Cost cutting efforts will only do so much. As high losses persist, much like with other struggling early-stage EV companies, Nio’s cash position may keep dwindling.
I wouldn’t worry about Nio experiencing a “game over” moment. A major backer, Abu Dhabi’s CYVN, may once again be willing to invest billions more into the company.
However, this would mean more shareholder dilution. Poor fiscal performance and dilution have been the two factors driving much of NIO’s slow and steady declines over the past year.
As these issues fail to go away, expect more of the same when it comes to price performance trends with NIO.
The Verdict: Follow Baillie’s Lead, and Sell/Avoid
Baillie Gifford was at one time very bullish on Nio’s long-term prospects. As seen in this investor slide deck, the Scotland-based investment firm believed that this upstart was on track to sell millions of vehicles annually by the start of the next decade.
However, with Baillie bailing, it’s clear that they no longer believe in this thesis. Chances are, they have come to a similar conclusion as stated above.
Weak-to-zero growth, coupled with high operating losses and cash burn, followed by shareholder dilution, will result in this stock slinking to lower prices.
With this in mind, here’s the verdict: follow the lead of this institutional investor. Sell NIO stock if you own it. If you’ve yet to buy it, avoid it.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
