Thread by @CVCResearch

When was the last time a company with a ~$4B mkt cap traded up on a quarter in which they 1) burned $1.0B (not a typo), 2) guided the next quarter to be much worse (-25% worse than both Q1 actual & Q2 consensus on top line)? Thread on the disastrous $NIO quarter. $NIOQ 1/

The most amusing part of the cash burn is that I estimate a "true" run-rate quarterly cash burn in Q1 was *only* ~$650M (still awful). From their 20-F, we know they spent at least $200M & more likely $300M+ of the gross proceeds from the $750M convert immediately $NIO $NIOQ 2/

What did they spend it on? ~$200M on "zero-strike call option transactions" in which the company bought back ~27M shares @ ~7.50 and an undisclosed sum on a capped call transaction. So they spent AT LEAST 27% of gross proceeds immediately and possibly closer to half $NIO $NIOQ 3/

I've never seen such incompetent financial management in my life. Even under the most optimistic of assumptions they now have at most 1 quarter left without a HUGE equity raise and that means running their cash down to zero and maxing out their bank lines. $NIO $NIOQ 4/

Why was the stock up off this disaster of a quarter?
1) Revs/EPS technically "beat" (also featured spectacular -14% GMs). The bottom line beat was driven by a 30% sequential decline in OpEx, which I find highly sus. They reported a ~$400M net loss but burned $1B 🤔
$NIO $NIOQ 5/

Somehow on a 53% sequential revenue decline A/R was UP 35% sequentially (DSOs tripled) 🤔 This all reeks of accounting manipulation, but no Chinese (or other EV company 😉 *cough* $tslaq) would ever do that right?? $NIO $NIOQ 6/

2) Fake RMB 10B ($1.4B) financing announcement that's meaningless. "Framework agreement" likely signed in past few days and the company, when asked multiple times, couldn't provide any details bc there aren't any. Very sus. This isn't the financing they badly need. $NIO $NIOQ 7/

3) Stock was at all time lows into the print and was up a whole 3% after this "beat"

The reality is:
- The company is ~1 quarter away from insolvency without a HUGE equity raise,
- They just guided down bigly for Q2 (-25% from Q1); cash burn likely gets worse $NIO $NIOQ 8/

- The pre-orders for their cheaper ES6 model are awful. They disclosed 12k just as they are to start delivering the first few hundred ES6 in June. For context, the backlog disclosed in their F-1 for the higher ASP ES8 was 17k over a month AFTER beginning deliveries $NIO $NIOQ 9/

- $NIO has 1%-2% market share of the China EV market (their only market), so they're basically irrelevant - no gov't bailout for them
- Recent subsidy cuts in China for $NIO have been even more draconian than those in the US for $tslaq

$NIOQ 10/

- Subsidies for $NIO were cut 40% at the start of '19 from ~$9800 to ~$5900, which contributed to a 50%+ decline in sales sequentially. They'll be cut another 72% on June 26 (total cut of 83% from '18 to 2H19) to just under $1700 $NIOQ 11/

- They didn't update annual guide of 35k-40k deliveries (despite 1H19 looking like only ~7K total from Q2 guide) but implied that number is going much lower
- Less than a year after first vehicle deliveries (June '18) they are already in hardcore cost-cutting mode $NIO $NIOQ 12/

- CFO squandered AT LEAST 27% and possibly closer to 50% of the gross proceeds from January capital raise (via converts) on side transactions. They still owe the full $750M though! #facepalm
- High likelihood of accounting trickery in Q1 $NIO $NIOQ 13/

There's probably more bad stuff that I'm forgetting, but I'll wrap it up. We will eventually see both $NIOQ and $TSLAQ IMO (both are zeroes), but all signs point to $NIOQ happening first, again IMO.
Full disclosure: I'm short $NIO in size, but $TSLA short still twice as big. /E

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