Nio Maintains Full-Year Delivery Target

Nio (NIO) delivered solid second-quarter revenue that exceeded the high end of company’s guidance by 2% and our estimate by 6%. Despite enlarged losses on rising operating expense levels, management is confident of delivering its full-year target of around 150,000 units, which we believe is a positive surprise to the market. We reduce our fair value estimate to USD 25.50 per ADS (HKD 200.00 per share) from USD 27.00 per ADS (HKD 212.00 per share) but maintain our positive view on the company. Our fair value implies a forward 2023 price/sales ratio of 2.8 times.

Nio’s second-quarter revenue grew 22% year over year to CNY 10.3 billion. The strong growth was underpinned by the year-on-year gains of 14% in the quarter’s vehicle delivery and 6% in average selling price due to higher contribution of ET7. However, due to the rise in raw material prices and battery cost, vehicle margin for the quarter declined 1.5 percentage points quarter over quarter to 16.7%. With increase in 1) research and development investment in new models and autonomous driving; and 2) selling expenses in relation to network expansion, second-quarter net loss increased to CNY 2.7 billion from net loss of CNY 659 million a year ago, while non-GAAP net loss (excluding share-based compensation) came in at CNY 2.2 billion.

For the third quarter, management guided vehicle delivery to grow 27%-35% year over year to 31,000-33,000 units and total revenue to increase 31%-39% year over year to CNY 12.8 billion-CNY 13.6 billion. The midpoint of guidance implies September sales growth of only 6%, which we believe is slightly weaker than expected, due to supply chain disruptions from the resurgence of COVID-19 in China, according to management. However, the company is confident about delivering its full-year sales target of 150,000 units, with robust orders for the newly launched ES7 sport utility vehicle, or SUV, and ET5 sedan, and the production ramp-up at its second plant.