Earnings Preview: Watch out for delivery outlook from NIO amidst sales slump in China

NIO Inc. (NIO) is slated to report its first-quarter results before the market opens on May 28 followed by an earnings conference call at 8 am ET. The electric car maker’s stock has decreased by 36% this year.

However, the stock has plunged 60% since March after the company reported weak deliveries for the first quarter. The share price touched a new 52-week low of $3.8 on May 23 during the morning trading hours.

Muted Q1 Deliveries

For the first quarter, NIO is forecasting revenues of $202.3 to $220.5 million, down 50% from last quarter. ES8 shipments at the end of March stood at 3,989, which came in better than the prior guidance of 3,500 to 3,800. However, this is still a huge deviation from 7,980 cars delivered last quarter.

Slowing Auto Sales

Chinese auto sales have been falling consistently over the last nine months and it has dropped 5.2% in March. There are multiple reasons attributed to the fall: weaker Chinese economy, changing consumer preferences towards smart cars and subsidy cuts for electric vehicles from the government. This will have a ripple effect on NIO’s performance in the next few quarters.

However, the bright spot for NIO and its peers like Tesla (TSLA) are that despite multiple headwinds dragging sales in the world’s largest auto market, young and savvy buyers are shifting towards smart and energy efficient cars, which are also environment-friendly.

Last year, electric vehicles and hybrid car sales jumped above 60% despite the declining trend reported in the overall auto market. Hence, NIO’s prospects look brighter in the near future.

ES6 Launch

When it comes to tailwinds, NIO launched a 5-seater SUV ES6 in December. Apart from the existing ES8, ES6 deliveries in the upcoming quarters would be accretive to earnings in the latter half of the year for the car maker. With improved macros in the second half along with strong product deliveries, NIO’s performance is expected to improve by the end of the fiscal year.

However, investors would be interested in getting updates from the management on Tuesday about the intended path to profitability based on the existing auto market landscape in China.

On the flip side, as the entry barriers are coming down in China for manufacturing energy-efficient vehicles, there is intense competition both from home-grown start-ups and well-entrenched brands from the US, Europe, and Japan.

Looking Ahead

It’s inevitable for NIO to focus on launching new products in line with the changing consumer preferences, focusing on after-sales service and improving the existing ecosystem to improve customer loyalty.

As the Chinese auto industry is undergoing transition, nimble players who are willing to disrupt and change are going to survive while others might try to catch up or go extinct from the auto market landscape.

With the backing of giants like Tencent and Baidu, NIO which is often dubbed as “Tesla of China” is well placed to face the bumpy ride ahead.

Q4 Performance

NIO doubled its revenues to RMB 3.44 billion ($499.7 million) compared to RMB 1.47 billion aided by higher vehicle sales. Adjusted loss contracted to RMB 3.20 per share ($0.47 per share) from RMB 71.47 per share loss in the prior year period. The premium electric car ES8 shipments more than doubled to 7,980 units from 3,268 units in the third quarter.

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