Image source: Sam Robson, The Motley Fool UK
I’ve been looking for turnaround stocks in my ISA portfolio recently. and Nio (NYSE: NIO) caught my eye considering the annual inventory drop by almost 20%.
92% have crashed for over four years and are now trading for just $3.50!
NIO has a perennial problem
Founded in 2014, NIO is a Chinese electric vehicle (EV) manufacturer focusing on the premium segment, particularly SUVs and sedans.
What sets it apart, however, is a battery swap station that allows you to replace the battery in just a few minutes, rather than a driver charging it. NIO operates around 3,354 of these stations, with the majority in China.
The company was once dubbedTesla China’s.” However, the moniker has never changed its profits and is no longer in use as its $7.3 billion market capitalization is part of Tesla.
The consistent losses from NIO have always put me on the investment. In 2024, the company delivered 221,970 vehicles, up 38.7% year-on-year, generating revenue of $9 billion (an increase of 18%). Still, it still lost $3 billion. This is roughly the same amount as last year.
In the first quarter, the company lost another $930 million, 30% more than the previous year. However, CFO Stanley Yu Q tried to reassure investors.Since the first quarter, we have implemented a variety of cost management measures, including organizational restructuring, cross-brand integration, and improving efficiency.. ”
Nio has been saying such things for every year I’ve followed it, so I read it and read the deja vu. However, losses continue to come and stock prices continue to decline.
Bruises are price war
Another thing that separates me is the brutal EV price war in China, Nio’s home market. This shows no signs of easing, and EV Giant byd Some models have recently reduced prices even further. Apparently, the Chinese government is very concerned about the industry.
Price wars are like anaconda, shrinking profit margins. In this environment, I don’t think NIO has the real pricing power.
That said, we have launched several cheap sub-brands to appeal to a wide range of customers. Onvo is family-friendly, while Firefly is a smaller, higher-end EV. Perhaps these could stand out in the increasingly crowded Chinese EV market.
My movement
Analysts now expect revenue to increase by 35% this year. Although impressive at first glance, the losses will continue for the next few years, according to the same forecast.
Obviously, we cannot allocate P/E ratios for NIO stocks as there is no revenue. On a sales basis, the multiple is only 0.75 times the price.
If there is a ceasefire in China’s EV war, it could prove to be an intergenerational bargain. NIO’s new brands sell like pancakes and ultimately make a profit.
But I have too many ifs. And at the end of the first quarter, just $3.6 billion, I’m worried that the company will need to inject yet another capital to keep the factory lights up soon.
Measuring things, I’m not bullish at NIO at $3.50 than $10. So I’ll continue looking for that potential turnaround stock elsewhere.
