While the automotive industry is still embracing an electric future, the pace at which U.S. automakers are heading in that direction has slowed. A lack of affordable electric vehicle (EV) options, high interest rates making big purchases less affordable, and a saturated high-price EV market have all but stalled sales momentum.
Those conditions will put immense pressure on unprofitable start-up EV makers and will almost certainly bring some industry consolidation. We've already seen Fisker crumble under the pressure. For investors, the question is: What company might be next? Could Nio (NYSE: Nio) be the next Fisker?
Let's rewind the tape
Rewind back about four years ago, when Nio issued its own "going concern" message, which essentially meant that it let investors know it might not have the cash to fund operations for another 12 months. Despite this dire situation, the company managed to secure funding from strategic investors, as well as the Chinese government.
Then Nio rewarded its investors with improved financial performance when its gross margin turned positive during the second quarter of 2020, and hit double digits during the second half the year. While Nio has recovered from the brink of bankruptcy, the truth is that the environment is very different in 2024. EV optimism has turned into pessimism, and price wars have eroded margins.
One major difference
One key reason Fisker is currently struggling is its failure to attract further investment. Fisker was reportedly in talks with Nissan, seeking a partnership in which the latter would invest roughly $400 million into Fisker, enabling Nissan to build its own electric pickup on Fisker's truck platform.
Unfortunately for Fisker, those talks fell apart and it was left searching for answers as its stock plunged and the New York Stock Exchange began the process of delisting the start-up EV maker. The stock now trades over the counter.
A great sign for Nio shareholders is that the company is still attracting investors. In late December 2023, Nio announced it closed a $2.2 billion strategic equity investment from CYVN Investments RSC, an investment vehicle based in Abu Dhabi.
NYSE: NIO
Key Data Points
Challenges remain
Although still attracting investment, it's clear that Nio faces challenges. Nio's annual net loss widened to $2.9 billion in 2023 as the company faced fierce competition in a saturated Chinese EV market. For context, the EV specialist ended 2023 with $8.1 billion in cash and cash equivalents, which is a much better position than Fisker being unable to cover its accounts payable.
The ongoing price war also weighed on margins: Nio's gross margin in the fourth quarter clocked in at 7.5% compared to the 10.2% analysts expected. Worse yet, the company was expecting to ship 33,000 vehicles in Q1 2024, down from over 50,000 in the fourth quarter of 2023.
While the situation is currently dim, there is hope for investors in the form of a new Nio subbrand, officially named Ledao, or Onvo in English. The lower-priced brand is expected to launch in the second quarter of 2024 at a price point just below Nio's name-brand vehicles, and it could provide the boost in sales volume the company desperately needs.
Ultimately, Nio might prove to be the next Fisker, but even with the tough position it's currently in, the company has much more hope for its future because it's still attracting investment. Plus, its upcoming lower-priced brand could generate much-needed sales. For now, it can sell investors on that future. That said, investors should understand that Nio will remain a highly speculative and volatile stock.
