Nio Inc (NIO)

[JLS]

Nio’s Cash Emergency

Forget NIO stock’s long-term value for a minute. Will Nio still be in business in six months? It’s an increasingly dire question that investors must grapple with. The price of Nio’s senior unsecured bonds has plummeted to just $36 from an issue price of $100. The debt is due in 2024. This means that anyone buying the bond today would nearly triple their money in capital gains and earn a nearly 13% annual interest rate on their capital along the way if Nio pays off its debt at maturity. Combined, it works out to a more than 33% annual yield at this price.

Think about that for a minute. If Nio merely stays in business, you can make gigantic profits. Why play around with NIO stock when you can get jaw-dropping returns from buying the bonds if the company can merely keep the lights on for five years? The more likely scenario, however, is that the company can’t repay its bonds in full. Bond holders would suffer some loss of capital while NIO stock owners would be wiped out entirely.

Do you think the credit market is overly worried? Think again. Nio appears to be technically insolvent — meaning that it has more liabilities than assets. They also appear to be nearly out of cash entirely; they ended Q2 with under $500 million in cash and have been burning nearly that much on a quarterly basis.

So what will be left at the end of next quarter? Analysts curious about this matter, however, couldn’t get any further details because — as I mentioned — the company decided to cancel its conference call.

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