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Monday, September 25, 2023

Why Abu Dhabi’s bet on NIO stock is an example of colorblind optimism


NIO stock - why Abu Dhabi's bet on NIO stock is an example of colorblind optimism

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This is a new development in the field of clean energy vehicles.A government-linked fund is reportedly taking a large stake in a Chinese electric vehicle (EV) maker Nioh (New York Stock Exchange:NIO). Potential investors should certainly pay attention to the news. However, that’s not enough reason to buy NIO stock in 2023.

As we’ll discuss later, a similar fund has a large stake in another electric car maker, lucid group (NASDAQ:LCID). So far, the investment has not worked out well. I suspect NIO’s current shareholders will experience the same story, a promising start and a sad end.

Which government is making a huge investment in NIO stock?

So, here’s the scoop.According to Louis Navellier and Investor Square Researchers, CYVN Holdingsan investment vehicle majority stake Investment approved by the Abu Dhabi government $738.5 million NIO inventory.

I’ve seen problems with this. CYVN Holdings agreed to buy 84,695,543 Nio shares at $8.72 each. As I write this, NIO stock is trading at $8.43. Could this be the start of a deeper drawdown?

As a parallel comparison, let us consider the Saudi Arabian sovereign wealth fund public investment fund (PIF), New position of nearly 1 billion US dollars LCID inventory. This happens at the end of 2022, when Lucid stock is near $6.50. The price has since dropped to around $5.50.

NIO’s bear protection box has not disappeared

Now, the Abu Dhabi government appears to be making a similar mistake. The red flags surrounding Nio haven’t gone away just because a government-backed fund is the majority shareholder.

To recap, NIO’s EV deliveries have gone from March 10,378 arrive April 6,658followed by May 6,155.In addition, Weilai’s revenue 33.5% drop The first quarter of 2023 will be followed sequentially.

In addition, NIO announced a net profit loss of 42 cents per American depositary share in the first quarter of 2023 (ADS).this did not reach analyst consensus estimate Loss of 22 cents per ADS. Moreover, NIO’s results were significantly lower than the 18 cents per ADS loss the company reported in the same period last year.

To make matters worse, Nio’s auto margins are showing a troubling trend. In particular, Nio’s vehicle margin has shrunk from 18.1% in the first quarter of 2022 to 6.8% in the fourth quarter of that year. This figure then deteriorates further to 5.1% in the first quarter of 2023.

Don’t rush to buy NIO stock

All in all, I agree with Louis Navellier and Investor Square Researchers. Should you invest because the Abu Dhabi government invests in NIO? Frankly, this “should have zero impact” on your decision to “buy/sell/avoid” NIO stock at the moment.

A similar situation occurred when Saudi Arabia’s Public Investment Fund bought a large amount of LCID stock. Half a year later, the investment showed a loss.

I suspect that the Abu Dhabi government’s massive investment in NIO will also disappoint. All in all, I wouldn’t recommend buying NIO stock right now due to the automaker’s poor operating and financial performance.

As of publication date, David Moadel Does not hold (directly or indirectly) any position in securities mentioned herein. The opinions expressed in this article are the author’s personal opinions, and are subject to InvestorPlace.com publication guidelines.

David Moadel has delivered compelling content on behalf of the Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga and (of course, InvestorPlace.com), and occasionally crosses the line. He also serves as the principal analyst and market researcher for Portfolio Wealth Global and hosts the popular YouTube financial channel Looking at the Markets.


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