Reward 100 Tiger-coinsNio (NIO 2.94%) was one of the hardest-hit electric vehicle (EV) stocks in 2022. Although Nio's deliveries rose steadily through the year, production and supply chain hiccups made it a bumpy ride even as rising costs weighed down margins. Investors were pinning their hopes on a stronger 2023, especially after management announced its growth plans some months ago.
Turns out, Nio's challenges are far from over. The company's fourth-quarter numbers just came out, and there's one metric that's caught the market's attention for all the wrong reasons.
Is Nio having real problems that should worry investors now, or should you get greedy while the markets are fearful and buy Nio stock on every dip?
Nio's fourth quarter was a record
Nio stock slipped after the EV maker slashed its fourth-quarter deliveries outlook in December. Nio, however, beat its revised guidance and delivered 40,052 vehicles in Q4, up a solid 60% year over year.
Also, it was a record quarter for Nio, with its revenue surging 62% year over year to $2.3 billion. During the quarter, Nio launched two new models on its second-generation technology platform -- the coupe SUV EC7 and SUV ES8.
CEO William Li confirmed the company's plans to start deliveries of five new products on its new platform in 2023 and build 1,000 power swap stations this year. Nio differentiates itself from competitors with its battery-as-a-service (BaaS) program under which customers can buy its cars on the cheap without battery packs and subscribe to plans to charge and swap their batteries at Nio's power stations. As of Jan. 17, Nio had around 1,300 power swap stations in China.
So far so good, so what's hurting Nio?
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Nio Stock: Buy, Sell, or Hold?
By Neha Chamaria – Mar 1, 2023 at 2:26PM
KEY POINTS
Nio delivered a record number of electric vehicles in the fourth quarter.
Its margins, however, fell sharply and it expects fewer deliveries in the first quarter.
While that may sound worrisome, there's more than meets the eye.
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Nio stock slumped after fourth-quarter earnings, but don't do anything before you read this.
Nio (NIO 2.94%) was one of the hardest-hit electric vehicle (EV) stocks in 2022. Although Nio's deliveries rose steadily through the year, production and supply chain hiccups made it a bumpy ride even as rising costs weighed down margins. Investors were pinning their hopes on a stronger 2023, especially after management announced its growth plans some months ago.
Turns out, Nio's challenges are far from over. The company's fourth-quarter numbers just came out, and there's one metric that's caught the market's attention for all the wrong reasons.
Is Nio having real problems that should worry investors now, or should you get greedy while the markets are fearful and buy Nio stock on every dip?
Nio's fourth quarter was a record
Nio stock slipped after the EV maker slashed its fourth-quarter deliveries outlook in December. Nio, however, beat its revised guidance and delivered 40,052 vehicles in Q4, up a solid 60% year over year.
Also, it was a record quarter for Nio, with its revenue surging 62% year over year to $2.3 billion. During the quarter, Nio launched two new models on its second-generation technology platform -- the coupe SUV EC7 and SUV ES8.
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CEO William Li confirmed the company's plans to start deliveries of five new products on its new platform in 2023 and build 1,000 power swap stations this year. Nio differentiates itself from competitors with its battery-as-a-service (BaaS) program under which customers can buy its cars on the cheap without battery packs and subscribe to plans to charge and swap their batteries at Nio's power stations. As of Jan. 17, Nio had around 1,300 power swap stations in China.
So far so good, so what's hurting Nio?
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Unfortunately, the company is struggling to convert higher sales into profits, raising concerns about its path to profitability.
The number that's hurting Nio stock most
Nio has faced a serious challenge in recent quarters: growing its vehicle and gross margins. In fact, much to everyone's surprise, its vehicle and gross margins plunged dramatically year over year to only 6.8% and 3.9%, respectively, in the fourth quarter.
Nio's vehicle and gross margins between Q1 2021 and Q4 2022.
DATA SOURCE: NIO. CHART BY AUTHOR.
Nio blamed the fall in margins on "inventory provisions, accelerated depreciation on production facilities, and losses on purchase commitments for the existing generation of ES8, ES6, and EC6."
Terms like inventory provisions and loss on purchase commitments may sound questionable, but it's not what you think.
The thing is, Nio is transitioning all its car models to the second-generation platform, and apparently had a lot of inventory of old models to clear last quarter. So while some customers may have canceled purchases of the older models, Nio also offered incentives to sell them. Such promotional activities and inventory cleanup typically add to costs and drive margins lower.
Meanwhile, costs of key components like batteries remain high, and that again added to Nio's costs in Q4.
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