NIO has rapidly transformed from a leader in the Chinese EV sector to a laggard as the company continues to struggle with its ambitious expansion plans amid escalating cost pressures and production halts due to China’s zero-COVID policy. Against this backdrop, NIO is slated to announce its Q1 2022 earnings today.
NIO’s Earnings for the First Quarter of 2022
For the three months that ended on the 31st of March 2022, NIO has recorded $1.56 billion in revenue. (All figures are in billions of dollars) NIO earned $1.46 billion during the quarter from vehicle sales. Crucially, its vehicle margin has declined on a year-on-year basis from 21.2 percent in Q1 2021 to 18.1 percent in Q1 2022, highlighting escalating cost pressures. NIO delivered 25,768 vehicles in Q1 2022. Since then, amid government-mandated factory shutdowns, the company’s production has slowed down dramatically. To wit, the EV manufacturer delivered just 5,074 vehicles in April, followed by 7,024 EVs in May. By the end of this year, NIO is expected to boast of a rich product portfolio, consisting of four electric SUVs – the ES8, ES6, EC6, and ES7 – along with the ET7 and the ET5 sedans. Bear in mind that the company plans to unveil its ES7 SUV as well as the refreshed versions of its existing SUV lineup on the 15th of June. NIO is currently ramping up the maximum production capacity of its Heifei plant to 300,000 units. Additionally, the company’s NeoPark facility, which will have the capacity to produce another 300,000 units per annum, is also expected to come online in H2 2022. Nonetheless, due to supply chain bottlenecks and lost production due to COVID-mandated lockdowns, Deutsche Bank now expects NIO to deliver 160,000 units in 2022 (down from the previous forecast of 170,000 units) and 320,000 units in 2023. Coming back, NIO’s balance of cash and cash equivalents stood at $8.4 billion in Q1 2022 vs. $7.3 billion in Q1 2021. Also, NIO has reported -$0.13 in non-GAAP EPS. (All figures are in dollars) For Q2 2022, NIO expects to deliver between 23,000 and 25,000 EVs, representing a relatively modest year-over-year increase of between 5 percent and 14.2 percent, respectively. Moreover, the company expects to earn between $1.47 billion and $1.60 billion in revenue during Q2 vs. consensus expectation of $1.79 billion. NIO shares are down around 2 percent in pre-market trading, suggesting that investors remain downbeat vis-a-vis NIO’s near-term prospects.
Earnings Context
As we’ve noted previously, the biggest overhang on NIO and other Chinese ADRs currently relates to the Holding Foreign Companies Accountable Act (HFCAA). To wit, the SEC flagged NIO under the HFCAA back in May 2022. Bear in mind that under the HFCAA, the SEC retains the authority to delist a foreign-listed company if it fails to file audit reports considered acceptable by the Public Company Accounting Oversight Board (PCAOB) for three consecutive years. China has barred its US-listed companies from complying with demands under the HFCAA, denying PCAOB access to accounting firms based in China and Hong Kong. However, there appears to have been a softening of rhetoric on both sides in recent weeks as negotiations between the US and China continue. Meanwhile, NIO continues to pursue alternative listings. As an illustration, the company listed its Class A ordinary shares on the Singapore Bourse back in May. Readers should note NIO’s declining fortunes have now divided Wall Street as well. For instance, GLJ Research’s Gordon Johnson is firmly lodged in the bearish camp. The analyst contends that NIO’s promise of unlimited battery swaps for eligible customers without “a crucial fee on the electricity” will likely result in the company continuing to see “deep losses every year for a long time.” On the other hand, Bank of America’s Ming Hsun Lee remains upbeat on NIO’s prospects, given that the stock’s 60 percent loss over the past 1-year period has “likely priced in all negatives.” The analyst views NIO’s improving sales and better margins in H2 2022 in a positive light, aided by the launch of new facelift models.
