Nio (NIO) Q2 2023 Earnings: What to Expect

Shares of electric vehicle maker Nio (NIO) have retreated over the past thirty days, falling some 8%, while the S&P 500 index has given up just 3%. While the stock is up 11% year to date, it still trails the S&P 500’s 14.75% rise. Investors want to know whether this is a buying opportunity, given that the stock is still down more than 42% over the past year.

That is one of many questions Nio's management must answer when the company reports its second quarter fiscal 2023 earnings before the opening bell Tuesday. It might not be an easy question to answer. Part of the reason being, despite a substantial growth in the company’s deliveries in July, Nio still remains far from its 250,000 delivery target for 2023, which means the electric vehicle maker must accelerate its ramp up not only to meet expectations in its upcoming Q2 earnings report, but also its annual target.

What’s more, in response to Tesla's (TSLA) pricing cuts, Nio has implemented its own price reductions which might negatively impact its revenue. Based on previous revenue per delivery metrics, investors are questioning whether Nio can meet EPS expectations despite missing revenue estimates given that the company is now operating at low gross margins. But there are still several reasons to be optimistic given that the company operates in China, a high growth region, which 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. For Nio, however, the question is whether there will be significant demand to meet its much-needed production ramp, and if it can fight off competitors such as Tesla. The company on Tuesday 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.

For the three months that ended April, Wall Street expects Nio to report a per-share loss of 41 cents on revenue of $1.27 billion. This compares to the year-ago quarter when it reported a per-share loss of 24 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.

As noted, Nio has begun ramping up its deliveries in July where it delivered 20,462 EV vehicles. To be sure, while this total accounts for growth of 91%, it's in the context of its full-year delivery target of 250,000 vehicles. With Nio management forecasting deliveries to average roughly 20,000 for the rest of the year, this puts the company on track to deliver 177,000 vehicles for the year. This underscores a fundamental problems in the company's ramp up strategy.

What’s more, its underscores a fundamental problems in the company’s overall financial position, particularly in its gross margins, as it cuts prices to compete with Tesla. Wall Street is even less optimistic in the company's ability to do just that, evidenced by the stock’s struggles. In the first quarter, Nio reported Q1 revenues of $1.55 billion, logging less than 8% year over year growth, while missing Street estimates by $80 million.

During the quarter, vehicle margins declined to 5.1%, and the company's operating loss increased by more than 133% year over year. Overall gross margins fared even worse, coming in at just 1.5%. The 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 views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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