This article was originally published on Simply Wall Street News
With the company potentially at an important milestone, we thought we would take a closer look NIO Inc. (NYSE: NIO) future prospects. NIO Inc. designs, develops, manufactures and sells intelligent electric vehicles in China and is set to expand globally.
NIO fair reported their monthly and quarterly deliveries for the third quarter and the numbers are above expectations!
NIO delivered 10,628 vehicles globally in September 2021, an increase of 125.7% year-on-year
NIO delivered 24,439 vehicles in the three months ended September 2021, a 100.2% year-over-year increase. This result exceeds the 22,500 to 23,500 vehicles expected.
NIO is making remarkable progress in production and delivery. They are also gaining 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 its way to profitability, we wanted to see when it reached this pivotal moment for investors.
The company’s loss has widened recently since it reported a CN 5.6 billion loss in the fiscal year, compared to the last year-over-year loss of CNN 8.2 billion, l ‘moving further away from equilibrium. Many investors wonder about the rate at which NIO will make a profit, the big question being when will the business be profitable?
We’ve put together a brief rundown of industry analysts’ expectations for the company, its breakeven year, and its implied growth rate.
According to the 21 industry analysts covering NIO, the consensus is that the breakeven point is near.
They predict the company will experience a terminal loss in 2022, before generating positive profits of $ 2.2 billion in 2023.
Therefore, the company should achieve equilibrium roughly 2 years from today.
How fast will the business need to grow each year to break even by 2023?
Looking back at analysts’ estimates, it turns out that they expect the company grow by 93% year over year, on average, which indicates a great confidence of the analysts. If this rate turns out to be too aggressive, the company could become profitable much later than analysts predict.
Since this is a high-level preview, we won’t go into details of upcoming NIO projects, although, keep in mind that roughly a high growth rate is not unusual, especially when a business is in an investment period.
Taking into account the debt
One thing we would like to highlight with NIO is its relatively high level of debt. As a rule of thumb, the rule of thumb is that debt should not exceed 40% of your equity, which in the case of NIO is 52%. A higher level of debt requires more rigorous management of capital, which increases the risk associated with investing in the loss-making company.
On the other hand, shareholders love NIO, and the company has a large cash balance, which it has partly raised through fundraising rounds. The company has CN46.9 billion euros in liquidity, approximately 3 times more than its outstanding debt.
The reason debt is a concern is that companies that are not making a profit cannot get the tax benefit of debt. On the other hand, debt gives them the funds they need to grow investment projects faster.
Key takeaways and next steps:
NIO posted a record quarter of vehicle deliveries, signaling that the company is on track to become profitable and a major competitor in the electric vehicle market.
Analysts believe that NIO will break profits in about two years, however, if the company maintains the current momentum, it could exceed expectations and start generating returns sooner.
We have noticed that NIO resorts to debt, but this does not seem to be of much concern as the company is well funded and has enough cash to cover the debt.
Some NIO fundamentals are not covered in this article, but we have to stress again that this is just a basic overview. For a more complete overview of NIO, check out NIO Company Page on Simply Wall St. We have also compiled a list of relevant aspects you should continue your research:
Evaluation: What is NIO worth today? Has the potential for future growth already been factored into the price? The intrinsic value infographic in our free research report helps to visualize if NIO is currently poorly valued by the market.
Management team: An experienced management team at the helm increases our confidence in the company who sits on the board of directors of NIO and the background of the CEO.
Other high performing stocks: Are there other stocks that offer better prospects with a proven track record? Discover our free list of these great stocks here.
Simply Wall St analyst Goran Damchevski and Simply Wall St have no positions in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents.