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Why Shares of Chinese Tesla Rival NIO Are Collapsing Again Today

By John Rosevear - Updated Sep 30, 2019 at 11:50AM

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A key analyst thinks the automaker is close to running out of cash.

What's happening

Shares of Chinese electric vehicle maker NIO (NIO -2.68%) were sharply lower on Monday after an influential Wall Street analyst said that the company could run out of cash within weeks, as it scrambles to open additional stores to help boost its sales. 

As of 11 a.m. EDT today, NIO's American depositary shares were down about 10.8% from Friday's closing price. 

So what

Analysts at Sanford C. Bernstein led by Robin Zhu cut their price target for NIO to just $0.90, about half its closing price on Friday. In a note, Zhu and his team said that even with a recent $200 million raise, the company may have only weeks of cash remaining. 

A red NIO ES6, an upscale five-passenger electric crossover SUV.

Initial sales of NIO's new ES6 have been promising, but they may not be enough to keep the company's lights on without an additional infusion of cash. Image source: NIO, Inc. 

The analysts believe that NIO's most likely options now are either a bailout, possibly funded by key shareholder Tencent Holdings (TCEHY -1.38%) or the Chinese government, or bankruptcy. While NIO is still a small company, Zhu and his team argue that its visibility in China makes it symbolically important: If it fails, other domestic Chinese electric vehicle makers may find it harder to get financing, setting back China's EV ambitions. So a bailout is a very real possibility. 

NIO posted a worse-than-expected loss for the second quarter in a late report last Tuesday, on sagging demand and high costs related to the launch of a new model. The share price fell 42% last week. 

NIO Chart

NIO data by YCharts.

Shares have fallen about 75% since their initial public offering in the U.S. in September 2018. 

Now what

During NIO's earnings call, CFO Louis Hsieh said that while the company has "made significant positive progress" toward securing additional funding in China, it can't yet disclose any details. As Bernstein's note suggests, that wasn't enough to reassure investors that NIO has a future, much less a profitable one.  

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Stocks Mentioned

Nio Inc. Stock Quote
Nio Inc.
NIO
$16.00 (-2.68%) $0.44
Tencent Holdings Limited Stock Quote
Tencent Holdings Limited
TCEHY
$43.64 (-1.38%) $0.61

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