INTRO: NIO is nearly bankrupt.
In the 3rd quarter of 2021, they burned $440,597,000 to keep operations afloat.
Amongst startups and especially EV startups, such atrocious net income figures are quite
common given the massive overhead associated with manufacturing and scaling vehicle production.
Fortunately, most of the high-flying EV startups have billions if not tens of billions in the
bank, so they can maintain such losses for dozens of quarters and several years.
Given this alarming situation, NIO went ahead and completed a share offering to raise $2
billion in November.
This has bought them a few more quarters, but completing share offerings in the future
is going to be significantly more difficult given that their stock is down 80% from their
all-time highs last year.
Considering all this, MacroAxis currently gives NIO a 96% probability of bankruptcy.
So, if NIO doesn’t figure out profitability within the next couple of quarters, they’re
probably going bankrupt.
Just a year ago though, NIO was likely the favorite EV stock on the market after Tesla.
So, what happened to NIO?
WILLIAM LI: Taking a look back, the story of NIO dates
back to a Chinese man named William Li.
William was born on August 9, 1974, on a dairy farm in the Anhui province.
Growing up, William’s family was rather poor, but they highly valued education and
wanted William to get a college education.
So, they started saving up for college as soon as William turned 7 years old.
As a kid, William would often live with his grandparents who lived in the nearby Wuling
village.
This was especially influential for William because whenever he was with his grandparents,
they gave him an accounting task.
William was responsible for counting money and keeping records of all the cows that his
grandfather sold.
This experience didn’t lead to some insane revelation like William figuring out the importance
of money or William learning the mechanics of business.
But, it did make it clear to William that regardless of what he did in the future, he
definitely did not want to live the rest of his life in the village herding cattle and
keeping records.
So, William started focusing on leaving the village and seeing the outside world, and
his first major opportunity to do so was of course college.
William attended Peking University in Beijing which is actually one of the most prestigious
universities in China.
Apparently, it’s the center of humanity-based studies in China and is often called “the
Harvard of China”.
Currently, their acceptance rate sits at a measly 0.91%, so given that William got accepted,
he clearly knew what he was doing.
Anyway, William majored in sociology, and one of the first things he did after enrolling
was pick up a job as a deputy monitor at the university.
His responsibilities included leading trips to historic places like the Great Wall of
China and helping his cohort build teamwork skills.
William had no complaints with the job, but unfortunately, he would fall ill and be hospitalized
for a month.
And by the time he recovered, he had lost the job.
This experience made William realize how dispensible he was, and in an effort to combat this, he
would try to add a few specialties to his skill set.
This included getting a minor in computer science and law.
Soon enough, William graduated from college, but he was still as lost as ever before, so
he decided to follow what interested him.
BITAUTO: One of William’s biggest passions was cars,
but William wasn’t ready to do anything nearly as ambitious as starting up an EV company.
So, he gauged the business landscape, and the most obvious opportunity he saw was the
internet.
So, in 1996, William decided to combine his passion for cars and the opportunity that
came with the internet in order to found the precursor to Bitauto.
Today, Bitauto has evolved into being one of the largest automotive publications in
China, and they do everything from marketing consultations to providing transactional services.
But back in 1996, Bitauto was basically just a blog and William was the main reporter.
Given the rapid growth of the internet throughout the late 1990s and the lack of Chinese automotive
content at the time, William was able to build up a solid following rather quickly which
allowed him to go from barely making ends meet to being pretty well off.
Despite the evolution of his finances though, William had no urge to stop being a reporter
and take on a more traditional role as a CEO.
He says that being a reporter gave him insight into the automotive industry that he couldn’t
get anywhere else.
It wasn’t until 2000 that William stepped back from reporting and officially founded
Bitauto Holdings.
While William was initially hesitant to make the move, once he made the move, he was fully
committed.
He split the business up into three segments which included the advertising and subscription
business, the transaction services business, and the digital marketing solutions business.
Starting with the advertising business, this is basically what he was already doing.
He sold advertising spots on his news portal to automakers, dealerships, and insurance
companies.
Given that all of you guys are watching YouTube, I’m sure yall know how this works.
Moving onto their transactions business, BitAuto partnered with a leading automobile finance
platform in China called Yixin Group Limited to provide various financial services to their
customers.
And finally, in terms of the digital marketing business, given that BitAuto had achieved
moderate success on the internet, William started to provide digital marketing consulting
services to automakers and dealerships.
You know, the classic how to set up a website, how to drive traffic to the site, how to convert
viewers into customers, and so on and so forth.
William did this for the next 13 years which not only made him wealthy but gave him significant
connections within the automotive world.
And this put him in the perfect position to startup NIO.
NIO Being involved in the automotive world for
decades at this point, it was clear to William that EVs were the future.
He wasn’t the only one that was convinced of this future either.
Basically, all of corporate China and the government were confident the EVs were the
future, and given the pollution problem in China, they wanted to switch over as soon
as possible.
As a result, when William proposed the idea of founding an EV startup, dozens of high-flying
tech companies lined up to provide funding.
This included Tencent, Xiaomi, Sequoia Capital, Lenovo, Temasek, and TPG.
And with that, William founded NIO in November of 2014, but it wasn’t originally called
NIO.
Initially, the company didn’t really have a name, and they were simply referred to as
NextEV.
Anyway, despite all this funding and the involvement of big players, the general public had no
clue what NextEV was.
Given that NextEV’s vehicles were consumer vehicles, this wasn’t a good thing.
So, William’s first order of business was to generate hype around the brand and what
better way to do that than show off a flashy sports car.
In November of 2016, NextEV debuted the NIO EP9 sports car.
This car would actually become the most expensive EV ever built clocking in at $3.48 million.
The EP9 was also the fastest EV ever built with a max speed of 217 mph.
Despite the impressive stats, this car was obviously not reasonable for the average person
in China, but this didn’t matter.
NIO had intentions of mass-producing this car.
This was simply a publicity stunt like the Tesla roadster to generate hype, and that’s
exactly what it accomplished.
Soon enough, people from around the world were talking about NIO’s crazy sports car
that could break 200 mph.
And this gave NIO the perfect opportunity to launch their luxury SUV, the ES8, in late
2017.
The ES8 wasn’t exactly cheap, but it also wasn’t crazy expensive either.
It started at $67,000 which made it comfortably affordable to well-off families.
NIO’s customers and car magazines loved the ES8, but unfortunately, this didn’t
last too long.
You see, starting in late 2018, stories of ES8’s catching fire started to surface.
There were only a handful of cases, but as you would guess, this was terrible for NIO’s
public reputation.
NIO would end up recalling the ES8 in 2019, and NIO’s delivery numbers would subsequently
jump off a cliff.
In late 2018, NIO was delivering over 3,000 ES8s per month, but by mid-2019, they were
delivering less than 500 ES8s per month.
NIO tried to combat this decline by launching a smaller SUV called the ES6, and this did
help quite a bit especially given the lower starting price.
But, NIO was still in a pretty rough position financially and reputation-wise at the end
of 2019.
Out of nowhere though, Tesla would reveal the Cybertruck, and Tesla stock would go to
the moon and the rest is history.
NIO’S THREE STRIKES: Even though NIO stock was sent to the moon
along with Tesla from a low of $1 to nearly $70, NIO was far from safe due to three main
reasons starting with their investor base.
Most of the people who invested in NIO didn’t invest because they were confident in their
financials or optimistic about their future.
In most cases, they missed out on Tesla’s run and they didn’t want to buy into Tesla
at several hundred dollars.
So, they looked for the next Tesla and the most obvious choice within the stock market
was NIO.
Considering this, a significant portion of NIO’s investors were short-term investors
who were looking to make a quick buck.
So, you can bet that these guys left as soon as NIO started to dip substantially which
has made it significantly harder to do share offerings and raise money.
And that brings us into NIO’s second major problem which is that they’re not profitable
nor are they close to being profitable.
Most of Tesla’s run occurred right after Tesla achieved profitability after years of
struggling with model 3 production.
In fact, Tesla neared bankruptcy on several occasions while trying to ramp up production.
And this is exactly where NIO is at right now.
Last year, they delivered 91,000 vehicles, and over the next few years, they have to
scale to hundreds of thousands.
If we take a look back at 2017, Tesla delivered 103,000 cars, and over the next few years,
they scaled to hundreds of thousands which is when they faced the vast majority of their
financial problems.
So, there’s no doubt that the next few years will be extremely difficult for NIO given
that they’re just now entering production hell.
And finally, moving on to the last major factor weighing down NIO, we have the Chinese government.
Now, the Chinese government has no problems with NIO specifically.
In fact, they’re major proponents of the EV revolution.
However, they’ve been fighting a corporate war against Jack Ma and a delisting war against
the US for the past 18 months.
And all this uncertainty has basically crashed the entire Chinese stock market.
In fact, Alibaba nearly revisited IPO levels after dropping 76% from their all-time high.
So, until NIO sheds all of its short-term investors, survives production hell, and the
Chinese government lightens up, NIO’s future remains uncertain.
NIO’S SAVIOR: Despite all this uncertainty, personally,
I don’t think NIO is going anywhere for one reason which is the Chinese government.
While their actions thus far have been inadvertently hurting NIO, I’m rather confident that they
won’t let NIO go bankrupt.
For the CCP, saving NIO is not only a matter of reducing pollution within China but a matter
of national pride.
China really wants to beat the rest of the world to EVs and be the first world power
that makes the transition.
And sacrificing one of their biggest EV producers definitely won’t help that.
Also, we should note that the CCP has helped NIO in the past.
In late 2019 when NIO was facing the recall crisis, the CCP gave them a $1 billion bailout.
At the time, NIO’s entire market cap was hovering at just $1 to $2 billion.
So, the CCP basically gave them a loan that was the size of their market cap.
Today, NIO is worth over $30 billion even with the recent decline, so I think the CCP
would just be even more willing to loan them a couple billion if needed.
Personally, I wouldn’t invest in NIO because I’d rather just invest in Tesla, but with
that being said, given CCP support, I don’t think NIO is going anywhere anytime soon despite
their horrendous balance sheet.
But that’s just what I think.
Do you guys think NIO will go bankrupt?
Comment that down below.
Also, drop a like if you hope NIO survives and accelerates EV adoption.
And of course, consider checking out our international channels to watch our videos in other languages,
and consider subscribing to see more questions logically answered.