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Earnings preview: Nio’s (NIO) cash crunch leaves market apprehensive ahead of Q3 report

By Staff Correspondent |
earnings preview

The electric car market in China witnessed hectic activity this year even as competition between local player Nio, Inc. (NYSE: NIO) and Tesla (NASDAQ: TSLA) intensified, with the latter making significant inroads into the fast-growing market. As the year comes to a close, Nio is struggling with multiple headwinds, mainly the crippling cash crunch that has pushed the company to the verge of bankruptcy.

The company has been busy ramping up its portfolio, including new launches, as growth prospects weakened after the government rolled back the subsidies enjoyed by Chinese electric vehicle makers.

Nio (NIO) beats revenue estimates for Q2; cancels conference call

After its disappointing second-quarter results spurred a stock sell-off, Nio embarked on a reorganization with focus on cost-cutting and workforce reduction. When the company reports third-quarter results on December 30, before the opening bell, the market will be closely following the event for updates on its financial health. The announcement has been delayed for several weeks, probably due to a lack of progress in the efforts to raise capital.

Liquidity Crisis

Meanwhile, the recent exit of chief financial officer Louis Hsieh has made things tough for the automaker. Earlier, CEO William Bin Li had hinted at more layoffs and separation of the non-core businesses before year-end, as part of streamlining the operations.

Related: Nio Q1 2019 Earnings Conference Call Transcript

Market watchers expect September-quarter revenues to grow at a below-trend rate of about 9% to $230.08 million, which is below the management’s outlook. The consensus estimate for the bottom-line is a loss of $0.34 per share, which represents an improvement from the last quarter.

Revival Plan

The modest pickup in deliveries in recent months, aided mainly by customers’ positive response to the revamped SUV ES6, has come as a relief to the stakeholders. Since its cash reserve is about to exhaust, the company urgently needs to seek additional funding as it enters 2020. In brief, it’s time for the management to think out of the box and come up with a foolproof revival strategy before Tesla further eats into Nio’s already-weak market share.

Looking Back

In the second quarter, revenues more than doubled to $220 million and surpassed the estimates. Net loss came in at $0.45 per share and missed the Street view. While deliveries increased year-over-year, margins deteriorated to -24%.

Also read: Tesla gets another boost after securing $1.4-bln loan

For Nio’s shares, 2019 has been a disastrous year, though they had a positive start. The stock dropped 61% since the beginning of the year and is trading about 78% below the levels seen at the time of the company’s IPO a few years ago.

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