Why Doesn’t Nio Inc Stock Pay Cash Dividends?

Nio House. Source: Flickr

While Nio has been public for nearly eight years since its IPO in September 2018, the company has never declared or paid any cash dividends. The following excerpt from Nio’s 2023 annual report explains the company’s dividend policy:

• Dividend Policy
  We do not have any present plan to pay any cash dividends on our ordinary shares in the foreseeable future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.

  If we pay any dividends on our ordinary shares, we will pay those dividends which are payable in respect of the ordinary shares underlying our ADSs to the depositary, as the registered holder of such ordinary shares, and the depositary then will pay such amounts to our ADS holders in proportion to the ordinary shares underlying the ADSs held by such ADS holders, subject to the terms of the deposit agreements, including the fees and expenses payable thereunder.

  Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.

Therefore, Nio is a non-dividend-paying stock that does not declare any cash dividends to shareholders who hold the company’s ADS (American Depository Shares).

This article explores the factors that do not support Nio’s cash dividends. Let’s take a closer look.

Investors looking for other statistics of Nio Inc. may find more resources on these pages:

• Nio revenue by segment and vehicle margin,
• Nio R&D vs Tesla and other Chinese EV makers, and
• Nio profit margin vs Tesla and other Chinese EV makers.

Please use the table of contents to navigate this page.

Slowing Vehicle Sales

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The first factor that may prevent Nio from paying cash dividends is its slowing vehicle sales.

While Nio’s vehicle sales have appeared to be soaring, the sales growth have significantly declined, as depicted in the chart above. In fiscal year 2023, Nio’s vehicle sales growth amounted to just 31%, the lowest rate ever recorded since 2019.

Prior to 2023, Nio consistently shipped vehicles at a growth rate of over 100% year-on-year. However, this growth rate declined to 34% in 2022 and further deteriorated to 31% in fiscal 2023.

Nio’s slowing vehicle sales will hinder not only potential dividends but also any form of capital returns to shareholders.

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Slowing Revenue Growth

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Similarly, Nio’s revenue growth has declined significantly, reaching only 13% in fiscal 2023, primarily due to the earlier noted decline in vehicle volume.

This figure is a stark contrast to the more than 100% revenue growth seen prior to 2023, making 13% the lowest rate ever recorded since 2019.

Consequently, Nio’s slowing revenue growth presents a major obstacle to the company’s potential cash dividends.

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Poor Gross Margin

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Another factor affecting Nio’s potential cash dividends is the company’s poor margin.

As shown in the chart above, Nio’s gross margin totaled just 5% as of fiscal year 2023, a significant decline compared to 2021.

A lower margin translates to lower profitability. In Nio’s case, the company may even be incurring losses after accounting for other expenses such as operating costs, interest expenses, and more.

As a result, the likelihood of Nio declaring dividends appears slim when the company’s profitability is reduced.

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Unprofitable Operations

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Nio is not only struggling with poor margins but also remains unprofitable.

As shown in the chart above, Nio has been operating at a loss for the past six years. The company’s unprofitable operations are not expected to improve in the foreseeable future and may even worsen.

In fiscal 2023, Nio’s operating loss worsened to RMB 22.7 billion from RMB 15.6 billion a year ago, the worst figure reported since 2018.

As a result, it is not feasible for Nio to declare a dividend at this time, given that it has never turned a profit.

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Poor Cash Flow

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Apart from being unprofitable, Nio also has very poor cash flow.

Of all the fiscal years shown in the chart, Nio had positive operating cash flow in only two fiscal years. Even worse, Nio’s free cash flow has been consistently negative. After accounting for capital expenditures, Nio burns more cash than it produces.

Therefore, a cash dividend is completely out of the question for Nio Inc when it has been burning more cash than it can generate.

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Growing Debt Levels

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As Nio Inc is unprofitable and has poor cash flow, the company relies on debt to sustain its operations.

As seen in the chart above, Nio’s total debt has been increasing over the years. As of fiscal 2023, Nio had one of the highest debt levels in the company’s history, topping RMB 22.9 billion.

Nio’s growing debt level is another factor that prevents the company from declaring any cash dividends.

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Conclusion

Overall, Nio’s inability to declare cash dividends is influenced by several factors, including slowing vehicle sales, declining revenue growth, poor margins and profitability, negative cash flow, and increasing debt levels.

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Credits and References

1. All financial figures presented in this article were obtained and referenced from Nio Inc.’s annual reports published on the company’s investor relations page: Nio’s Financial Results.

2. Flickr Images.

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Disclosure

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