With the business potentially at an important milestone, we thought we'd take a closer look at NIO Inc.'s (NYSE:NIO) future prospects. NIO Inc. designs, develops, manufactures, and sells smart electric vehicles in China and is on route to expand globally.
NIO just reported their monthly and quarterly deliveries for Q3, and the numbers are above expectations!
- NIO delivered 10,628 vehicles globally in September 2021, increasing by 125.7% year-over-year
- NIO delivered 24,439 vehicles in the three months ended September 2021, increasing by 100.2% year-over-year. This result beat the expected 22,500 to 23,500 vehicles.
NIO is making outstanding progress in production and deliveries. They are also pushing a foothold in Europe and on September 30, 2021, NIO opened its NIO House and completed its first batch of vehicle deliveries in Norway.
With the company well on the way to profitability, we wanted to see when it will reach that pivotal moment for investors.
The company's loss has recently broadened since it announced a CN¥5.6b loss in the full financial year, compared to the latest trailing-twelve-month loss of CN¥8.2b, moving it further away from breakeven. Many investors are wondering about the rate at which NIO will turn a profit, with the big question being when will the company breakeven?
We've put together a brief outline of industry analyst expectations for the company, its year of breakeven and its implied growth rate.
According to the 21 industry analysts covering NIO, the consensus is that breakeven is near.
They anticipate the company to incur a final loss in 2022, before generating positive profits of CN¥2.2b in 2023.
Therefore, the company is expected to breakeven roughly 2 years from today.
How fast will the company have to grow each year in order to reach the breakeven point by 2023?
Working backwards from analyst estimates, it turns out that they expect the company to grow 93% year-on-year, on average, which signals high confidence from analysts. If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.
Given this is a high-level overview, we won't go into details of NIO's upcoming projects, though, bear in mind that by and large a high growth rate is not out of the ordinary, particularly when a company is in a period of investment.
Taking Debt Into Account
One thing we would like to bring into light with NIO is its relatively high level of debt. Generally, the rule of thumb is debt shouldn't exceed 40% of your equity, which in NIO's case is 52%. A higher level of debt requires more stringent capital management, which increases the risk around investing in the loss-making company.
On the flip side, shareholders love NIO, and the company has a large cash balance, which it partly raised from financing rounds. The company has CN¥46.9b cash, which is about 3x more than its outstanding debt.
The reason debt is a concern, is that companies that do not have a profit, cannot't get the tax advantage of debt. On the other side, debt gives them the funds they need to push faster for capital projects.
Key Takeaways & Next Steps:
NIO posted a record quarter in vehicle deliveries, signaling that the company is well underway to become profitable and a large contender in the electrical vehicle market.
Analysts estimate that NIO will break profit in about than two years, however if the company sustains the current momentum it may surpass expectations and start generating returns sooner.
We noted that NIO makes use of debt, but that seems to be of little concern as the company is well funded and has enough cash to cover the debt.
There are key fundamentals of NIO which are not covered in this article, but we must stress again that this is merely a basic overview. For a more comprehensive look at NIO, take a look at NIO's company page on Simply Wall St. We've also put together a list of relevant aspects you should further research:
- Valuation: What is NIO worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether NIO is currently mispriced by the market.
- Management Team: An experienced management team on the helm increases our confidence in the business take a look at who sits on NIO's board and the CEO's background.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
Simply Wall St analyst Goran Damchevski and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.