Nio Earnings: Vehicle Margin Still Depressed, but Recovery In Sight

Nio’s NIO first-quarter revenue was close to the low end of its guidance. Vehicle margin declined 13 percentage points year over year to 5.1% due to product mix change and promotions on older models. However, management indicated that vehicle margin will stage a sequential recovery in the second half on better product mix. With enlarged losses on softer vehicle margin and rising operating expense ratios, we increase our net loss forecasts for 2023-24. We reduce our fair value estimate to USD 14 per ADS (HKD 108 per share) from USD 15.50 (HKD 120). Our fair value implies a forward price/sales ratio of 2.6 times.

For the second quarter, management guided vehicle delivery to be flat to a decline of 8% year over year to 23,000-25,000 units and total revenue to decrease 9%-15% year over year to CNY 8.7 billion-CNY 9.4 billion. The midpoint of guidance implies June delivery to be around 11,000 units, which we believe is above market expectation, indicating strong ramp-up of the new ES6. Management also commented during the briefing that it expects monthly sales to further pick up to about 20,000 units in the second half, with the new ES6 sport utility vehicle and other new models to be launched this month.

Despite the near-term margin pressure, we maintain our positive view, as Nio enters a strong model cycle with improving sales momentum driven by new models. Delivery of the new generation ES6 commenced late last month and Nio will launch the ET5 Touring, the wagon variant of the ET5, and the new ES8 this month, boding well for our price and margin outlook. We believe Nio’s premium branding through exemplary customer service and innovative charging technologies will differentiate itself from the competition and benefit from vehicle upgrade demand.