Chinese electric carmaker NIO Inc (NYSE:NIO) is struggling after the company reported a wider-than-expected loss in Q2 as well as several layoffs in late September. NIO stock has lost 60% since September 20.
Disappointing Q2 Results
NIO’s gross margin was -33.4% relative to the first quarter when it was -13.4%. Vehicle deliveries declined from 3,989 in Q1 to around 3,553 units.
NIO has indicated that it is planning to cut its headcount to 7,800 from 9,000 as it also explores spinning off some of its non-core businesses. The company CEO William Bin Li said that NIO stock is responding to the overall tough market conditions as the company seeks to maximize returns on operations. He added that the company has already implemented broad efficiency as well as cost control measures to steer it to the path of profitability.
He added that these measures are meant to enhance and streamline the company’s operations in the sales and services network as well as R&D operations. The company has had to contend with declining vehicle deliveries, softening sales, and also shrinking margins, which is an indication that the Chinese Tesla is declining. Vehicle sales declined in July after the Chinese government pared EV purchase subsidies. In June, the company had to recall over 5,000 vehicles after reports that their ES8 SUV cars were catching fire.
NIO stock is down 8.33% at $1.21 and made a new low of $1.20 earlier in the session.
NIO Could Soon Run Out of Cash
The huge sell-off experienced this week intensified after analysts at Sanford C. Bernstein revised their price target for the company to $0.90. The basis of the revision is the possibility that NIO will run out of cash in the coming weeks. In the quarterly report, the company indicated that it had burnt around $620 million in Q2, leaving only around $503 million available in cash at the end of the quarter.
NIO expects to raise $100 million each from Li and Tencent Holdings (OTCPK:TCTZF). However, analysts think this is too little, and the company needs more to survive.
There is no doubt that NIO stock is one of the worst performers in 2019, with a fall of about 80% year-to-date.
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