Nio Earnings: Vehicle Margins Stage Sequential Recovery, but Delivery Guidance Misses

Nio’s NIO second-quarter revenue was at the low end of its guidance. Vehicle margins declined 10.4 percentage points year over year to 6.2% due to product mix change and promotions on older models. In addition, delivery guidance for the third quarter missed market expectations. With lower vehicle margins and rising operating expense ratios assumptions, we increase our net loss forecast for 2023-24 and delay our breakeven year forecast to 2026.

We have reduced our fair value estimate to USD 13.30 per ADS (HKD 103 per share) from USD 14.00 per ADS (HKD 108 per share). Our fair value implies a forward 2024 price/sales ratio of 1.9 times.

For the third quarter, management guided vehicle delivery to grow 74%-80% year over year to 55,000-57,000 units and total revenue to increase 45%-50% year over year to CNY 18.9 billion-CNY 19.5 billion. The midpoint of guidance implies monthly delivery to be around 17,500-18,000 units for August and September, which we believe is below market expectation of 20,000 units per month. Management also commented during the briefing that they expect monthly sales to pick up to at least 20,000 units in the fourth quarter with ES6, EC6, ET5, and ET5T contributing most of the volume.

Despite the near-term margin pressure, we expect vehicle margin to record sequential recovery in the second half as economies of scale kick in and with the decline in battery cost. Management indicated that vehicle margin will improve to double digits in the third quarter and to around 15% in the fourth quarter. We maintain our positive view as Nio enters a strong model cycle with improving sales momentum driven by new models. Our sales and margin outlook are well supported by the further delivery ramp-up of ES6, ET5 Touring, and ES8. We believe Nio’s premium branding through exemplary customer service and innovative charging technologies will benefit itself from vehicle upgrade demand and differentiate from the competition.