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Key Takeaways:
By Doug Young
Ever wonder what it would feel like to live on life support for two full years?
That’s a bit how it feels for Uxin Ltd. , which has continually flagged the precariousness of its financial situation to investors over that time, as it races against the clock to prove the viability of its used car superstore business model. The company received a small but important vote of confidence last week from shared ride company Dida Inc. (2559.HK) in the form of a modest $15 million in new financing.
While that amount may not seem huge, it’s more than four times the meager 23.3 million yuan ($3.3 million) in cash that Uxin had in its coffers at the end of March, down from 92.7 million yuan a year earlier. That shows just how quickly Uxin burns through cash as it tries to make its new business model profitable. The small size of this latest infusion also reflects how the company is having to scrape up funds any way it can to keep running.
But at least there’s someone out there still willing to give the company money. One of its earlier backers was electric vehicle (EV) startup Nio . But Nio has stopped providing funds as it faces its own cash challenges in China’s overheated EV market. Uxin also has strong backing from regional governments where its superstores are located, though most of those funds are getting pumped back into its two current locations in the cities of Hefei and Xi’an.
The latest funding from Dida comes in two parts. One will see Dida purchase $7.5 million worth of Uxin’s shares for the equivalent of $1.4575 per American depositary share (ADS), according to concurrent announcements last Friday by Uxin and Dida. The price represents a discount of about 17% to Uxin’s stock price over the previous 60 trading days, which seems like a reasonable discount given the precariousness of Uxin’s situation. The amount would give Dida between 1% and 2% of Uxin’s shares, according to our calculations.
In addition, Dida would provide another $7.5 million to Uxin in the form of a loan. That loan has a relatively short term of just 18 months, showing that Dida is far from confident enough to lend its new partner money on a long-term basis. Dida said it hopes to find synergies with Uxin in China’s fast-growing used car market, partly by selling Uxin’s used cars to its own drivers over its ride-sharing platform.
“Through the cooperation with Uxin Ltd., the company expects to provide additional aftermarket services to and promote used-car transactions for private car owners on its platform and attract additional private car owners to enhance its passenger capacity,” Dida said in its announcement.
Uxin investors weren’t too impressed by the deal, though they didn’t frown on it either. The company’s stock rose by a slight 0.7% in Friday trading in New York, though it’s down 78% so far this year over the bigger concerns about its long-term viability. Dida shareholders were less impressed, bidding down its shares by 8% in Friday trade in Hong Kong.
Truth be told, the size of the investment isn’t huge and Dida could probably afford to lose the money without too much pain if Uxin fails to repay the loan. Instead, the negative reaction by Dida’s shareholders probably reflects broader investor concerns about the wisdom of this investment in such a financially shaky company.
Gaining Traction, But Slowly
We’ll spend the second half of this review looking at Uxin’s situation, which is dicey due to its low cash levels. The company is also getting caught in the vortex of vicious price wars that are hammering China’s used car market through a toxic mix of stiff competition and growing consumer caution as the country’s economy slows.
The economic slowdown could actually work to Uxin’s advantage over the longer term as many consumers who would have previously insisted on new cars downgrade their plans to buy quality used cars instead. Uxin should have a natural advantage over China’s thousands of smaller used car dealers in that regard, since its scale gives it far greater resources to recondition cars properly and provide higher-margin after-market services like insurance and maintenance.
That model is similar to the one used by U.S. giants Carmax and AutoNation , which have found steady business and profits selling used cars through superstore formats. But, of course, Uxin will need to solve its problem of simply surviving to see that day when it can finally become profitable.
To that end, Uxin dangled the possibility of operating profitability to investors in its latest quarterly results for the three months to March, which it released at the end of July. The company reported adjusted EBITDA for the period of 40 million yuan, which was roughly the same as the 41 million loss a year earlier. But it noted that its adjusted EBITDA for the 12 months through March this year narrowed by 40% to 176 million yuan versus a year ago, as its gross margin improved sharply to 5.9% from 1.2% over that period.
As its operations grow and its profitability improve, it said it believes it can reach adjusted EBITDA profitability in the three months to this December.
The narrowing losses are coming as Uxin gains experience and scale that are allowing it to improve its profitability. The company’s revenue fell 7.2% year-on-year to 319 million yuan in the three months to March, the fourth quarter of its fiscal year. Its retail car sales for the quarter actually rose by 38% to 3,124 units, showing how the price wars were undercutting its prices. At the same time, the company’s cost of revenue for the quarter fell by 24%, far outpacing the rate of revenue decline as it was able to operate more efficiently.
The company expects to return to revenue growth in its current fiscal year as it opens two to three more stores this year to complement the two existing ones. As that happens, it said, it expects to report its revenue for the three months to June to reach between 390 million yuan and 410 million yuan, which would be up by a strong 38% at the midpoint year-on-year. Furthermore, it forecast over 150% retail sales growth in its current fiscal year that runs through next March versus the previous year.
Such growth, combined with its positive adjusted EBITDA milestone in the December quarter, would be quite significant for the company, taking big pressure off its constant need for new cash. Now, it just needs to stay in business long enough to reach those milestones.
This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
The broader market strength pervaded into the electric-vehicle space and most stocks belonging to the industry posted decent gains in the week ended Sept. 13. That said, some of the upstarts continued to bleed, reflecting ongoing struggles.
Here’s a rundown on what happened in the EV space during the week:
Tesla China Sales Momentum Accelerates: After weighed down by competitive pressures in China following the COVID-19 pandemic, Tesla, Inc. appears to be on the road to recovery in this key market. China insurance registration data for Tesla vehicles came in at a robust 16,200 for the week ended Sept. 8, CnEVPost reported, citing data provided by Li Auto, Inc. .
Commenting on the data, Tesla bull and fund manager Gary Black said the weekly registration data suggested Tesla is on track to record the best quarter ever. With three weeks left in the quarter, the quarter-to-Sept. 8 data showed 15% year-over-year and 25% sequential growth, he said.
Meanwhile, sell-side analysts have begun trimming their quarterly delivery and earnings per share estimates for Tesla, ahead of the deliveries report, likely due on Oct. 2. CANACCORD Genuity’s George Gianarikas reduced his estimate from 480,000 units to 469,200 units, which however, is higher than the consensus estimate of 458,000 units. Most analysts suggested that they would look past the deliveries report and into the Oct. 10 Robotaxi unveil event.
See Also: Best EV Stocks
Lucid Offers Another Sneak-Peek Into Midrange EV: Luxury EV maker Lucid Group, Inc. , which held its Technology and Manufacturing Day at its Arizona facility this week, shared another glimpse of its mid-sized EV, which is set to roll off the production line in late-2026. The EV will have starting price under $50K, which will pitch it against EV leader Tesla’s hugely successful Model Y electric SUV.
Lucid Motors@LucidMotorsSep 10, 2024Wrapping up Tech & Manufacturing day: A new sneak peek at one of our upcoming midsize vehicles, set for production in late 2026 with a starting price under $50k.
With leading technology and efficiency, it will be able to deliver the same range as competitors while using a... pic.twitter.com/yJ5re2fIlt
At the event, Lucid showcased its technological advancements and provided updates on its roadmap.
Ford Eyes India As EV Export Base: Legacy automaker Ford Motor Co. , which closed down auto manufacturing operations in India three years ago, will likely restart production in the country. Local media outlets reported that Ford International Markets Group President Kay Hart has submitted a letter of intent to the local government of the Indian state of Tamil Nadu, where its manufacturing plant functioned out of. The company reportedly wants to manufacture EVs for export, with the operations likely resuming in 2025. Down the line, the company also plans to have a battery manufacturing unit in the state.
Canoo Withdraws Guidance: In a filing with the SEC, Canoo, Inc. said it was withdrawing its previously-issued revenue guidance for the year ending Dec. 31, 2024, and also its previously-issued operational guidance relating to the manufacturing run rate, production and delivery of vehicles in 2024 and subsequent periods. The company announced preliminary third-quarter revenue of $0.1 million to $1.2 million and an adjusted EDITDA loss of $30 million to $40 million. The revenue guidance trailed the $2.45 million consensus estimate.
The company also said it has entered into the equity distribution agreement with Northland Securities to sell up to $200 million shares from time to time, through an “at the market offering” program. Canoo’s woes reflect the state of the EV startup ecosystem, which has been stymied by cash crunch, production hiccups and weak demand.
VinFast On Regulator’s Radar: The National Highway Traffic Safety Administration has initiated a probe into EVs manufactured by Vietnamese EV maker VinFast Auto Ltd. based on complaints lodged by vehicle owners. The probe covered around 3,118 vehicles manufactured in 2023 and 2024, with owners alleging that the vehicles had problems with the “Lane Keep Assist system. The system had difficulty detecting lanes on the roadway, and provided improper steering inputs, making it difficult to override by the driver, the regulator said, citing the complaint.
The KraneShares Electric Vehicles and Future Mobility Index ETF fell 0.56% on Friday before ending at $19.38, according to Benzinga Pro data. For the week, the ETF , however, gained 4.47%.
Check out more of Benzinga’s Future Of Mobility coverage by following this link.
Read Next:
Here’s how the EV stocks fared this week:
Weekly Change (+/-) | |
Tesla | +9.28% |
Nio, Inc. | +10.56% |
XPeng, Inc. | +5.04% |
Li Auto, Inc. | +4.42% |
Workhorse, Inc. | +17.19% |
Hyzon Motors, Inc. H | -30.77% |
Canoo | -13.19% |
Rivian Automotive, Inc. | +2.04% |
Lucid Group | +10.36% |
Faraday Future Intelligent Electric Inc. | -16.88% |
Nikola Corp. | +2.66% |
VinFast Auto Ltd. | +5.88% |
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
NIO is a Chinese electric vehicle maker that has experienced a precipitous fall from grace from the highs its stock price reached amid the COVID-19 pandemic. Over the past three years, shares have fallen 86%. However, according to the analysts at JPMorgan , there may be light on the horizon for the consumer discretionary firm.
The company raised its price target on NIO stock from $5.30 to $8 in the first week of September. This price target signals the company's shares could rise 50% from their current level. So, what is with the current state of NIO, how does it compare to peers, and is the stock a buy now?
NIO: Impressive Growth, but Profitability Is the Question
NIO positions itself as a premium EV maker, selling its products in China, Norway, Germany, the Netherlands, Denmark, and Sweden. However, it also recently announced a new vehicle and secondary brand. The Onvo L60 will go on sale on Sept. 19 and has a lower price point, meant to appeal to a wider range of customers. It competes directly with the Tesla Model Y, undercutting the vehicle's price by over $4,000.
NIO has seen substantial growth in its sales through the first part of this decade. The company’s revenues for the last twelve months (LTM) since the middle of 2020 have grown by over 6x to $8.74 billion. However, achieving profitability, or even growing consistently closer to it, has been a significant problem.
In early 2021, the company’s operating margin nearly turned positive, a milestone many up-and-coming firms aim to achieve. But since then, the figure has moved deeply negative. In Q2 of 2023, the LTM operating margin hit -45%. It recovered meaningfully to -34% last quarter, but the firm still isn’t anywhere close to making money.
Comparing NIO to Its Chinese Peers
NIO can start making money at some point. Competitor Li Auto recently was able to get over the hump, seeing its LTM operating margin turn positive in Sept. 2023. However, it still shows inconsistency in keeping the figure positive on a quarter-to-quarter basis.
It could be argued that NIO needs more sales to create economies of scale to achieve profitability. Li’s LTM revenues are over double that of NIO’s. However, Li’s margins were infinitely closer to being positive when its sales were at similar levels to what NIO’s are now.
NIO's valuation is relatively similar to that of peers such as XPeng and Li. However, the company doesn’t seem to offer much in the way of superior fundamentals. The company’s forward enterprise value to sales (EV/S) ratio is 0.9x, higher than the two other firms.
This is even though both firms have gross profit margins 400 to 1000 basis points higher than NIO. Li's net income margin is the only positive figure of the three, and XPeng’s is significantly less negative than NIO’s.
NIO is also being hit by tariffs from its only market outside of China, the European Union. NIO got hit with a 21% tariff for sales in the economic bloc. Although most of its revenues still come from China, operating in these markets requires energy and resources that may not be worth it in the long term.
The U.S. and the EU have remained resolute in their willingness to protect their domestic auto industries, and that doesn’t feel likely to relent any time soon. Companies like Li don’t face this issue, as they only sell in China.
NIO: Making Good Moves, but Li is More Proven
NIO’s new launch of its lower-priced brand feels like a good move to increase its margins in the long term. It should be able to increase overall vehicle sales significantly, helping create the scale it needs to improve its margins. However, it's hard to say that the firm offers better value than Li Auto.
Li has already shown its ability to make money. Also, NIO’s expected compound annual revenue growth rate of 31% doesn’t blow Li’s 26% number out of the water by any means. This is especially true as Li’s total revenues last quarter were 81% higher than NIO’s. A faster growth rate for NIO would be good to see, considering this difference in total revenue.
Additionally, Li’s sole focus on China allows it to streamline efforts more, not trying to compete in EU markets where the odds are stacked against them. The company also boasts support from a wider assortment of analysts with an average price target implying an upside of 47%.
Used car auto e-retailer Carvana’s CVNA pivot from an aggressive growth strategy to operational efficiency and cost-cutting has been paying off really well. CVNA stock is having a great time on the bourses. So far in 2024, shares have rocketed 165%, handily outperforming the Auto-Tires-Trucks sector and its close peers like CarMax KMX, AutoNation AN, Lithia Motors LAD and Sonic Automotive SAH. This rally has added more than $10 billion to Carvana’s market capitalization in 2024 alone.
With such a massive run-up, investors must be wondering if they should lock in profits or buy the stock for more upside potential. Let’s delve into the company’s fundamentals to determine the best course of action.
YTD Share Price Comparison
CVNA Progressing Well on its Three-Step Plan
Carvana’s three-step plan — aimed at driving positive adjusted EBITDA, achieving significant adjusted EBITDA per unit and eventually returning to growth— has been central to its stunning turnaround after teetering on the brink of bankruptcy in 2022.
The company reached a critical milestone by achieving positive adjusted EBITDA in the second quarter of 2023. Several initiatives, including proprietary software development, logistics optimization, and the in-sourcing of third-party services, helped the company to reduce costs and improve profitability.
In the last reported quarter, Carvana’s adjusted EBITDA totaled $355 million, with margins increasing to 10.4% (highest among all the listed US auto retailers), up from 7.7% in the first quarter of 2024 and 5.2% in the year-ago period.For full-year 2024, it forecasts adjusted EBITDA to range between $1 billion and $1.2 billion, suggesting a massive uptick from $339 million last year.
Carvana’s efforts to reduce retail reconditioning and inbound transport costs are driving gains in adjusted total gross profit per unit. In the second quarter of 2024, the metric came in at $7,344, up 4.4% yearly and 8% sequentially.
Carvana’s ability to generate positive free cash flow is another encouraging sign for investors. In the first half of 2024, the company generated $415 million in free cash flow, slightly up from $393 million in the same period the previous year.
Despite economic headwinds such as high interest rates, Carvana has managed to grow its retail unit sales. In second-quarter 2024 alone, it increased its retail units by 33%. With potential rate cuts from the Federal Reserve on the horizon, the demand for used cars could see a further boost, which will bode well for Carvana. The company expects a sequential increase in retail unit sales in the third quarter of 2024. It expects full-year 2024 retail sales units to grow on a yearly basis.
Carvana’s Concerns: High Debt & Pricey Valuation
While Carvana’s operational performance has improved, its balance sheet remains a concern. As of June 30, 2024, Carvana’s long-term debt was $5.43 billion against cash/cash equivalents of $542 million. Its debt-to-capital ratio stands at 0.98 compared with the auto sector’s 0.57. Elevated leverage restricts the firm’s flexibility to tap into growth opportunities.
From a valuation standpoint, CVNA stock is trading at a forward 12-month sales multiple of 1.97, higher than the sector as well as the 5-year median. The stock seems to be overvalued now.
How Should You Play CVNA Stock Now?
Given Carvana's remarkable stock surge in 2024, it may indeed be too late for new investors to buy at these inflated levels. Also, the valuation isn’t appealing at the moment. That said, CVNA’s long-term prospects still remain strong.
Carvana currently has an average brokerage recommendation (ABR) of 2.46 on a scale of 1 to 5 (Strong Buy to Strong Sell), based on 19 ratings. Of those, 12 rate the stock as a Hold.
For those already invested, it might be wise to hold onto the stock as Carvana continues to execute its well-laid plan for profitability. However, new investors may want to wait for a more attractive entry point to reap handsome rewards.
CVNA stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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