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Nio Earnings: Results In Line, With Decent Vehicle Margin Recovery

Reducing our fair value estimate of Nio’s stock on lower vehicle selling prices and rising operating expense assumptions.

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What We Thought of Nio’s Earnings

Nio’s NIO third-quarter revenue was at the low end of the company’s guidance. Though vehicle margin declined 5 percentage points year over year to 11% due to product mix change and price promotions, that was a 5-point recovery from last quarter, benefiting from larger volume and lower battery costs. With lower vehicle selling prices and rising operating expense assumptions, we increased our net loss forecast for 2023-25 and reduced our fair value estimate to $12.50 per share from $13.30. That estimate implies a forward 2024 price/sales ratio of 2 times.

For the fourth quarter, management guided vehicle delivery to grow 17%-22% year over year to 47,000-49,000 units and total revenue to increase 0%-4% year over year to CNY 16.1 billion-CNY 16.7 billion. The midpoint of guidance implies December monthly delivery to be around 16,000 units, at a similar level as the past couple of months. While the target missed the 20,000-unit mark the company set earlier, we believe it is in line with market expectations, given recent sales momentum and industry competition.

Despite intensifying competition even in the premium segment, we maintain our positive view of Nio. We expect the recovery trend in vehicle margins to continue in the fourth quarter as economies of scale kick in amid a decline in battery costs. Management indicated that vehicle margins will further improve to around 15% in the fourth quarter and the high teens in 2024. In addition, the recently announced strategic cooperation with Chang’an and Geely on battery swapping service and charging technologies will help the company realize operational efficiency for its charging network and turn around the segment.

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