China is one of the fastest-growing electric vehicle markets, thanks to the aggressive green energy campaign and subsidies offered by the government that create a conducive atmosphere for automakers to flourish. Niu Technologies (NASDAQ: NIU) stands out in the EV realm with its unique urban mobility solution – battery-powered scooters.
In an exclusive interview with AlphaStreet, the company said it expects to tackle the Covid-induced slump in demand by focusing on the main Chinese cities that face traffic congestion and where the residents have comparatively better purchasing power. Going forward, there will be efforts to tap the opportunities in the mid to high-end markets, which account for about 70% of sales. The focus will be on the middle-end market, for which the company recently announced a new series of GOVA scooter.
The company had a rather unimpressive start to the year, with the pandemic-related disruptions impacting first-quarter results. Nevertheless, the market responded positively to the better-than-expected revenue performance and positive guidance, resulting in a stock rally earlier this week.
“Many aspects of our operations were harmed as a result of the ongoing pandemic of the novel coronavirus. Due to the strict measures in response to the outbreak, we had to reduce work resumption rate in February and March of 2020,” said CEO Yan Li.
In view of the continuing movement restrictions, Niu executives expect online sales to further pick up during the remainder of the year, after jumping about 70% in the first quarter. But volumes would still be moderate compared to offline sales. They bet on the presales campaigns and engagement of Key Opinion Leaders to strengthen foothold in the international market, though the macro issues related to coronavirus can dampen the company’s overseas prospects in the near term.
It needs to be noted that international sales increased in the March-quarter, despite the tight lockdown in regions like Europe, supported mainly by Niu’s online capabilities and promotional activities. Meanwhile, sales in China dropped during the period. In Europe, the company is rolling out a unique rental service, allowing customers to rent scooters.
Niu told AlphaStreet that after the successful entry into South America, it is shifting focus to South East Asia and India where EV adoption is gathering steam. In all likelihood, social distancing is going to stay here for some time and there will be consistent demand for personal mobility solutions, which would increase the relevance of the products being offered by the company.
It seems the constant focus on innovation is paying off at a time when it is needed most, with early responses showing that the new MQi2 e-bicycle rolled out recently was well received by the market. Interestingly, the smart bike has already reached dealers and customers because the company had stocked inventory before the launch.
For the first three months of fiscal 2020, Niu reported a loss of $0.05 per American depositary shares (ADS), compared to profit last year. The weakness in bottom-line performance reflects a double-digit decline in revenues to $32.9 million, mainly due to lower e-scooter sales in China.
Initial estimates indicate that there has been a progressive decline in sales volumes since February. However, the increase in average selling price, aided by the stable demand for accessories and parts, points to the underlying strength of the business.
“Heading into June, the China retail market will most likely continue to improve as many cities like Beijing and Shanghai even suggested no mask necessary when on site. In addition, the need for a personal commuting solution is very high. So we’re quite confident and positive about the near-future growth in China.”Yan Li, chief executive officer of Niu Technologies
Taking a cue from the demand recovery in the local market, the management is expanding capacity and the sales network, which involves significant capital spending that can weigh on liquidity. Also, high costs related to logistics and marketing might put pressure on margins going forward. However, it will likely be offset by the moderation in procurement and raw material costs.
With the primary cause of poor first-quarter sales being the heavy dependence on offline traffic, the management will be focusing on ramping up the digital capabilities. Meanwhile, the grants and concessions offered by the federal government and regional authorities, despite the recent cuts, will continue to be a major driving force for Niu and its peers.
For more insights about Niu Technologies, read the latest earnings transcript here. It’s free!
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