<p>When it comes to car companies, financing is a big problem. A concern for cash is precisely what sent Tesla (NASDAQ: TSLA) down last summer, and new funding is exactly what revived it. Will Nine (NASDAQ: NIO) stocks undergo a similar transformation?
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The nine shares rose 13.4% on Tuesday, when the S&P 500 and Nasdaq each fell close to 3%. Nio’s shares also overcame the fact that car deliveries have been ground to a halt in China. The meeting was triggered by a report that Nio was discussing an agreement to receive 10 billion yuan, or about $ 1.42 billion, from the Chinese city of Hefei. The company then reportedly signed a preliminary deal to obtain financing from the city.
The funds help the company to cover its operating costs and general expenses. Companies need a huge amount of resources to get air under their wings. And car manufacturers’ overheads are even higher than most other types of companies.
Nine have had to work at a loss because they manufacture and develop their electric vehicles. If it secures new financing, the Nio shares can get a fairly large lift.
Before we dive into the basics a little more, let’s look at the stock chart.
Trades Nine shares
The nine-share is trading surprisingly well. Remember that in October, when investors feared that Nio would not have enough money to finance its business, its shares traded below $ 1.50. An additional 10 billion yuan will help alleviate that concern, but until there is strong demand for Nio’s products, it may be difficult for investors to be very enthusiastic about their business.
Although the chart does not seem to indicate how investors feel about the company’s future, the stock‘s technical outlook is indeed improving.
Nine stocks are staying above several trend brands, as well as all of their major moving averages. However, many investors sold the stock after it rose on Tuesday. I think there were two reasons for that. At first it was a very tough day in the stock market overall making some rallies difficult to maintain. Second, Nio has struggled with $ 5 in recent months. Every climb to that area has been met with a sale.
Going forward, the equities’ outlook is fairly straight forward. At a meeting, see if Nine stocks can break and close above $ 5. If it can, the 2020 peak of $ 5.65 will be on the table. Above that and $ 6 plus is possible.
On the downside, I want to see short-term uptrend support (pictured by the purple line) and long-term uptrend support (pictured by the blue line) continue to lift the Nio stock. Nearby is the 50-day moving average, currently at $ 3.72. If Nio does not hold these marks, a decline to the 100- and 200-day moving averages near $ 3 will be played.
The conclusion of Nine
Unlike iQiyi (NASDAQ: IQ), which can very well take advantage of the coronavirus fear, Nio will not get help from it. While recent reports of a potential finance deal are positive and the stock‘s chart looks better, there are many fundamental concerns to worry about.
The company’s deliveries in January disappointed investors, while management said deliveries in February would be damaged by the virus. Recent forecasts call for a 70% drop in industrial car deliveries this month in China. To what extent it will hurt Nine, I’m not sure. But it’s not good news.
Last quarter, Nio lost more than $ 350 million. Although it lost less money than in the previous quarter and during the same period a year earlier, it still lost a significant amount of money. This is especially true for a company that has only $ 137 million in cash in its balance sheet and $ 274.3 million in cash, cash, limited cash and short-term investments. In its last quarterly press release, the company stated the following (bold emphasis added):
“The company works with continuous loss and negative equity. The company’s cash is not sufficient to provide the required working capital and liquidity for continuous operation during the next 12 months. The company’s continuous operation … depends on the company’s ability to obtain sufficient external capital or loan financing. ”
Essentially, Nio has to raise additional funds – and it’s trying. In this environment, getting your hands on some cash may not be that difficult. But if its business does not improve and its forecasts do not look bright, no one will want to lend to Nine.
There is demand for Nio’s vehicles, but its economic outlook is not good. Speculative investors can invest in Nine stocks as long as its charts remain bullish. Other investors should consider avoiding the shares.
Bret Kenwell is the director and author of Future Blue Chips and can be found on Twitter @BretKenwell. At the time of writing, Bret Kenwell had no position in any of the above securities.