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Can the ES6 Really Save Nio?

Will Ashworth

It’s incredible what good news can do for a stock. On Oct. 2, Nio (NYSE:NIO) had fallen to a 52-week low of $1.19. InvestorPlace’s crack team of investment writers were highly skeptical of the electric vehicle’s ability to get up off the canvas and live to fight another day.

Can the ES6 Really Save Nio?

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On Oct. 3, Luke Lango said that the company’s stock would likely remain depressed. A day later, James Brumley highlighted the fact that Nio is quickly running out of cash. Finally, on Oct. 7, David Moadel recommended investors cut their losses and move on. 

Since then, Nio has rebounded nicely, doubling in price to $2.59 as I write this. 

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What’s been the elixir for Nio? 

The ES6 Continues to Attract Customers

In June and July, Nio delivered 1,086 ES6s in the two months combined. In August, it managed to put the pedal to the metal, delivering a whopping 1,797 ES6s, 65% higher than in the two previous months combined.

Since then, it has produced three straight months with ES6 deliveries over 1,700: September (1,726), October (2,220) and November (2,067).   

In the six months between June and November, Nio delivered 8,896 ES6s and 2,297 ES8s. That’s an average of 1,483 and 383 per month, respectively. However, if you exclude June’s numbers, their respective monthly average falls to 1,697 (ES6) and 274 (ES8). 

On average, Nio is delivering six times as many of the ES6, its smaller, five-seater SUV, than it is of its seven-seater SUV, the ES8, which was its first commercially produced vehicle.

As long as the ES6 continues to put up monthly delivery numbers above 1,700, Nio’s stock has a shot at continuing to move higher. 

Remember, in its August heydays, Nio was trading in the mid-$3s, a buck higher than where it currently trades. 

What Could Get In Its Way?

Bankruptcy is one possibility. 

When I last wrote about Nio in November, I pointed out that it had an Altman Z-Score of -4.45, making it a likely candidate to go bankrupt within the next 24 months. I wasn’t very confident about its chances of survival. I’m still not.  

The reality is that Nio lost $805 million in the first six months of its fiscal year, an average loss per delivered car of $106,436. And while the company is likely to lose less per delivered ES6, it could lose as much as $1.3 billion for the entire fiscal 2019, based on 11,824 vehicles delivered in the second half of the year. 

A $1.3 billion loss would be in line with its 2018 annual loss from operations of $1.4 billion. The upside is that it’s delivering more vehicles in 2019. But a loss is a loss. 

Nio will likely report its official Q3 earnings shortly. In October, it stated that it increased vehicle deliveries in the third quarter by 35.1% from the second quarter. Through the first nine months of 2019, it has delivered 12,341 vehicles, many of them ES6s. 

While the delivery numbers have been stable since August, the company is facing a cash crunch that is real. If it’s unable to solidify its finances — either through a debt raise or equity issue — the company will likely not survive past 2020. 

Tesla (NASDAQ:TSLA) has faced this very same issue, so it’s possible Nio can keep the wolves from the door. 

We’ll know more once it reports its latest earnings. 

The Bottom Line on Nio’s Future

There isn’t a chance that I would recommend Nio to a friend or family member. The same applies to risk-averse investors. 

However, it’s hard to ignore Nio’s delivery numbers. They’ve been solid for four consecutive months, which suggests consumers in China like the ES6. 

Is the ES6 enough to save Nio’s bacon? The Chinese-manufactured Model 3 will have something to say about this. 

That said, if you’re a speculator, the numbers suggest business is reasonably good at Nio. An announcement solidifying its financial footing would quickly push Nio above $3. 

It’s an intriguing risk/reward proposition.    

At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

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