Goldman Sachs has downgraded its rating on Chinese electric vehicle maker NIO from ‘neutral' to ‘sell,' decrease the price target to $3.90. the brokerage firm said that NIO has a lack of new model pipeline, slow rate in ramping up production and increasing operating losses because of heavy spending on promotions and research. Weak sales momentum has led Goldman to believe NIO will fail to meet the company's forecasted volume and revenue for the fourth quarter.
The same sentiments were echoed at Macquarie whose altered its rating of NIO to ‘neutral' from ‘outperform', and lowering the target price by 27%. The firm was disappointed by the fourth-quarter sales guidance and weaker demand outlook for its Onvo line. In its note, Macquarie pointed out that NIO has cut its revenue forecast by 18% from what was expected even though it does have positive cash flow and lots of cash on hand.
Both of them are associated with more fundamental concerns on its capability to address growing market pressures and manufacturing risks in the next quarters.
NIO has been experiencing stellar revenue growth CAGR 5Y of 27.3%, but unfortunately their EBITDA have also been growing 21% CAGR in 5Y negatively.
NIO is a relatively new EV automaker that invest heavily in research and development while expanding its product lines and technological advancement. Investing in long-term growth is good but managing costs and turning a profit is the ultimate goal eventually.
Poor efficiency also contributes to rising debt levels that is now competing with the cash resources. With Altman Z-Score of 0.49, Nio has a high probability of bankruptcy within the next two years.
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