Shares of Chinese electrical vehicle (EV) company Nio Limited (NIO) have been punished over the past six months, falling close to 40%, compared to a 3.5% rise in the S&P 500 index. The company's inability to grow its vehicle delivery rate has alienated investors.
What’s more, over the last several months, investors have grown concerned that larger EV automakers such as Tesla (TSLA) have begun to squeeze Nio's profit margins particularly in its own Chinese market. But is now a good time to bet on a turnaround? That is one of many questions Nio management must answer when the company reports its fourth quarter fiscal 2022 earnings before the opening bell Friday.
The company recently reported its May delivery numbers of just over 6,155 vehicles delivered. Not only was that total the lowest figure Nio delivered in almost a year, it also marked an 8% sequential decline and a 12% year over year decline. There were questions at the start of the year as to whether Nio had reached the low point of the decline, and that clearly hasn’t been the case. But there are still several reasons to be optimistic given that the company operates in China, a high growth region.
China recently ranked as the second fastest-growing EV market in sales. After nearly doubling in 2022 with an 87% year over year growth, China alone accounts for close to 60% of global EV sales volume. Currently, EVs now account for roughly a quarter of all vehicles sold in China. So, it’s possible that Nio has (this time) reached the low point of its delivery decline, making the growth picture when it reports on Friday more favorable from this point forward.
For the three months that ended April, Wall Street expects Nio to report a per-share loss of 41 cents on revenue of $1.68 billion. This compares to the year-ago quarter when it reported a per-share loss of 17 cents on revenue of $1.48 billion. For the full year, ending December, the loss is expected to be $1.02 per share, rising 21.4% year over year, while full-year revenue of $11.62 billion would rise 62% year over year.
The company continues to ramp up additional production capacity. The major question is whether there will be significant demand to meet that production ramp. Its management forecasts a 90% rise in fiscal 2023 revenue, driven by higher volumes. But Wall Street is less optimistic in its projection, calling for revenue growth of 30 percentage points lower than the management’s outlook. Analysts view Tesla’s price cuts as a potential competitive headwind for Nio.
Its management has taken some key steps aimed at balancing the company’s demand efforts with profit margin stability. Most notably, the company has decided to not enter a price ware with Tesla. “For us, we will certainly not join the price war,” CEO William Li said, according to CNBC. Li insists that Nio’s products and services are worth the price. That strategy and the hard line might have impacted the company's recent revenue totals which missed analyst estimates.
For Q4, the company reported revenue of $2.33 billion which grew more than 62% year over year. Despite the impressive growth metric, revenue missed estimates by more than $225 million. Because of vehicle margin pressure, down 6.7 percentage points in Q4, the adjusted loss of 52 cents also missed estimates by 23 cents.
Its management remains committed towards improving these numbers over the long term. But this will be a daunting task in the face of intense competition. The company on Friday can make a strong case for its value by delivering a top- and bottom line beat, along with strong delivery guidance for the next quarter and full year.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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