Nio Earnings: Revenue In Line, but Vehicle Margin Missed; Near-Term Pricing Pressure Remains

Key Morningstar Metrics for Nio

• Fair Value Estimate: $9.10
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

What We Thought of Nio’s Earnings

Nio’s NIO fourth-quarter revenue was at the high end of guidance. However, vehicle margin missed the company’s previous guidance of around 15%, despite gaining 5 percentage points year over year to 12%, benefiting from lower battery cost and inventory provision in the prior year quarter. With Nio’s lower vehicle margin and selling price, along with rising operating expense assumptions, we’ve increased our net loss forecast for 2024-25. We’ve reduced our fair value estimate to $9.10 per share from $12.50, implying a forward 2024 price/sales ratio of 1.7 times.

Despite intensifying competition even in the premium segment, we believe the company’s shares are undervalued for long-term investors. While we predict vehicle margin will remain under pressure in the near term, given price promotions ahead of model upgrades in March, we expect the margin to record sequential recovery from the second quarter of 2024 as economies of scale kick in amid declining battery cost. Management indicated that vehicle margin will improve to 15%-18% in 2024. In addition, Nio’s strategic cooperation with automakers such as Chang’an, Geely, and Chery on battery-swapping services and charging technologies will help it realize operational efficiency for its charging network and turn around the segment.

For the first quarter, management guided vehicle delivery to be flat or increase 6% year over year to 31,000-33,000 units, with total revenue to decrease 2% or increase 4% year over year to between CNY 10.5 billion and CNY 11.1 billion. The midpoint of guidance implies the March monthly delivery to be around 13,800 units, which we believe is slightly under the optimistic end of the market’s expectations. During the analyst call, management maintained their full-year target of selling 200,000 units through penetrating lower-tier markets. The company will launch its first model under the Alps brand in the third quarter.