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Nio (NYSE:NIO), the company that is often referred to as the “Tesla of China,” has seen quite a bit of volatility over the past year. The stock is currently down more than 47% from a year earlier, and it doesn’t look like a turnaround is coming anytime soon.
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Nio stock dropped recently due to disappointing January deliveries. Company management said this drop was due to a variety of factors, including the coronovirus from China and the timing of the Lunar New Year.
The company is still considered a moderate “buy” on Wall Street, but is now the right time to invest in Nio stock? Here are three issues to consider.
NIO Vehicle Deliveries Are Down
In January, Nio delivered 1,598 vehicles, which is an 11.5% decrease year over year. Management called the results “satisfactory,” but warned that the drop could continue well into February.
CFO Steven Fung said that the company expects its vehicle production and delivery to take a hit in the coming months. This is partly due to the unfavorable timing of the Lunar New Year. Plus, the Chinese government postponed many businesses returning to work over ongoing fears over coronavirus.
A slowdown in production and deliveries is the last thing Nio needs right now. The company is already struggling with heightened competition from companies like Tesla and a slowdown in car sales in China.
Not Enough Free Cash Flow
Many investors are optimistic about Nio’s future prospects, but the company is still nowhere close to being profitable. And the company still continues to struggle with free cash flow.
The company has been in talks with the Chinese automaker GAC Group. The automaker recently confirmed that it considering making an investment in Nio, but said the investment won’t exceed $150 million. This investment would help, but it’s still far below what Nio needs to continue operating at the same level.
Nio Suffers Short-term Coronavirus Fears
The biggest short-term headwind for Nio is ongoing fears over the new virus from China. The coronavirus is sparking global concerns, but it’s taken an especially heavy toll in China, where the virus originated.
As of right now, there have been more than 37,000 confirmed cases of the virus and more than 800 people have died as a result. This has caused the Chinese government to shut down transportation in one city. There is still a lot that’s unknown about the coronavirus, but it will likely continue to affect consumer spending in China.
The low delivery numbers, lack of free cash flow, and ongoing coronavirus fears would each be problematic on its own. But when you put them together, it could spell real trouble for Nio in the coming months.
As of this writing, Jamie Johnson did not hold a position in any of the aforementioned securities.
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