NIO Inc. stock rose 8.4% after the Chinese electric vehicle maker reported a narrower-than-expected second-quarter loss Thursday.
The company announced a per-share loss of 30 cents from sales of $2.4 billion. Wall Street was expecting a per-share loss of 31 cents from sales of $2.4 billion, according to FactSet. A year ago, NIO lost 45 cents a share from sales of $1.2 billion.
“In the second quarter of 2024, NIO achieved a record-breaking delivery of 57,373 premium smart electric vehicles, securing over 40% of the market share in the battery electric vehicle segment priced above 300,000 [yuan, $42,275] in China,” CEO William Bin Li said in the earnings release.
For the third quarter, NIO sees sales between $2.63 billion and $2.71 billion. It expects deliveries of vehicles between 61,000 and 63,000 units. Wall Street was looking for sales of about $2.5 billion from 57,000 vehicles.
NIO delivered almost 41,600 cars in July and August. Guidance implies another month of 20,000-plus car sales.
The bounce is a relief. Through Wednesday trading, NIO’s ADRs were down about 53% year to date. Industry price competition has weighed on investor sentiment all year.
Second-quarter sales essentially doubled, but deliveries, of 57,373 vehicles, grew about 140% year over year. Delivery volumes growing faster than sales is a sign of weak pricing.
Despite price pressure, NIO’s vehicle gross profit margin came in at about 12.2%, up from 9.2% in the first quarter and up from 6.2% in the second quarter of 2024.
NIO’s earnings come after results from several peers including XPeng . Citi analyst Jeff Chung pointed out in a recent report that he expects the valuation of NIO and XPeng to converge, creating an arbitrage opportunity. He favors owning NIO stock and selling XPeng shares.
Simply put, XPeng shares are more expensive, he said, trading for about 0.9 times his estimated 2025 sales. NIO trades for about 0.6 times sales. A strong earnings report could help close the gap. Improving gross profit margins is another reason Chung cited.
Wall Street expects NIO’s overall gross profit margin to hit about 11% in the third quarter. That looks more likely after second-quarter margins came in at 9.7%, about 0.7 percentage points better than analysts projected. XPeng’s gross profit margin is expected to be about 14% in the third quarter, similar to the second-quarter level.
An arbitrage-type trade needs to have investors long one stock and short the other. It might be difficult for most investors to set up the trade if they aren’t familiar with shorting stocks—borrowing shares that an investor doesn’t own and selling them.
It can be risky. There is no guarantee the valuation gap will close and if XPeng shares rise, it means a loss for the shorting investor.
Still, the valuation gap is worth noting. Stronger-than-expected earnings is one thing that can help close it.
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