NIO Q4: Can Earnings Spark a Stock Surge?
Quarterly report.
$NIO Inc.(NIO)$ is scheduled to report its Q4 2023 earnings on 05 Mar 2024.
It has always been the last of the 3 musketeers ( $Li Auto(LI)$, $XPeng Inc.(XPEV)$) to report since day one.
What will it be this time round?
To answer this question, let’s harked back my post on Q3 2023 estimates (click here ! for details).
I did a guess-timation based off Q2 2023 actuals (EVs delivered & revenue earned) and proportionally mapped the revenue numbers based on Q3 2023 deliverables.
Erring on the side of conservatism, I had (in my post), sales at RMB15.54 Billion versus NIO’s Q3 actuals (sales) at RMB19.07 Billions.
Not too shabby considering that I did not have:
The prices of the different EV models sold.
The varying discounts to be applied.
for impending Q4 2023 earnings, will adopt the same approach. (see below)
NIO EVs delivered - Q4 2023 vs Q4 2022
In Q4 2023, NIO delivered 50,045 EVs, exceeding its previous guidance range of 47,000 to 49,000 EVs. This works out to be +25% more YoY. (see above)
In Q4 2022, NIO delivered 40,052 EVs (see above table)
In Q4 2022, revenue was RMB16.06 Billion (US$2.33 Billion).
Applying the mathematical direct proportion, Q4 2023 revenue should come in between RMB 19 - 20 Billion (US$2.8 - $2.9 Billion).
Earnings per share (EPS) is still expected to be loss-making at -$0.33 but better than last years EPS of -$0.56.
Net income (loss) : should be -RMB$ 4.4 Billion, marginally better than Q3 2023’s results (-RMB$ 4.56 Billion).
EV margin: expected to recover to 11.7% in Q4, up +0.7% from the Q3’s margin of 11%.
Savings & Expenses.
In November 2023, NIO has laid off about 10% of its bulging workforce that has swelled disproportionally, due to lack of discipline when it comes to hiring.
There should be some savings to be had for Q4 2023.
However, my main grouse have always been NIO’s blank cheque mentality when it comes to Research & Development (R&D) expenses. (see above)
I think it is at plain sight that NIO has been spending indiscriminately.
For FY2023, although it has come off December 2022’s quarterly peak - expenses are still “high” compared to past 3 years quarterly expenditure.
Even if a conservative increment of +20% of 2022’s R&D expenses (US$1.571 Billion), it is still a whooping US$1.885 Billion; money that NIO does not really have.
It will be interesting to know whether Management has managed to reign in R&D expenditure in 2023.
2024 Outlook.
NIO’s January 2024 delivery was 10,055 EVs. This is up +18.21% YoY where last January delivery was 8,506 EVs.
With 2 new appointees from Abu Dhabi government fund CYVN Holdings, hopefully these new directors would be able to pave the way for NIO’s entrance into Middle East’s EV market.
With its sub-brand Alps scheduled for July trial production, hopefully Alps will invigorate the NIO brand in H2 2024.
NIO’s battery swap alliance partnerships with Geely, Changan Automobile back in November 2023 hopefully would become a revenue-generating venture from H2 2024 onwards, as more brands of EVs from its alliance partners could tap on the Battery-as-a Service (BaaS) business model.
NIO has a very distressing 2023.
In the past 12 months, it has lost about -40.25% of its stock price, while other tech companies soar to the sky.
It’s new bottom price of $5.38 was achieved on 05 Feb 2024.
It last peaked at $15.46 on 03 Aug 2023.
In 2008, mr musk took over as CEO of Tesla. In 2010, it went through an initial public offering (IPO). 3 years later, in Q3 2013, Tesla reported its first profit.
In 2018, NIO IPO on the US market.
Apply the same 5 years yardstick standards, NIO should have broken even in 2023.
Unfortunately it did not happen as the covid pandemic was the main detractor (to be fair).
Not to mention, NIO’s mismanagement by its “incompetent” management team.
On 23 Feb 2024, analyst from JPMorgan has decided to downgrade NIO to “underweight” rating, owing to the overall falling demand for EVs in China. (see above)
Along with the downgrade, they have also revised the price target to $5.00 from $8.50.
For an investor, It is difficult to see straight amidst all the negative news surrounding NIO.
Amongst the 3 Chinese musketeers of Li Auto, Xpeng and NIO, it is lagging behind Li Auto but is definitely ahead of Xpeng, be it EV output and sales.
All else considered, did you wonder why JPMorgan did not downgrade Xpeng as well? The possibilities are endless - agree?
Looking objectively at NIO’s past earnings and revenue (see above), it is not hard to see that profit margin has plateau, thanks to steep price slashing started by Tesla, in its selfish bid to keep sales volume up.
This caused all EV players to toll the line, in order to “ring fenced” their sales from being cannibalize by Tesla’s discounts.
For EV makers that have yet to break even, the repercussions are obvious and damaging.
Only need to look to other US EV makers (eg. $Rivian Automotive, Inc.(RIVN)$ or $Lucid Group Inc(LCID)$ ) to know that they are suffering big time, compared to their Chinese counterparts.
One other point to note is NIO’s debt to asset chartings. (see above)
The debt-to-asset graph dipped in 2018 after the muncipal government in Hefei injected the much needed cash to help NIO tide thru the rough patch.
However with production ramp up, it rose in 2019.
Only to see it dipped again in 2020 when demands for EVs (in China) gain traction.
With the onset of covid & the ultra strict lockdown in China, the graph began to bubble up again, from 2021 onwards.
However the rise is considered “tame” as NIO’s asset has grown exponentially.
So has its liabilities but thankfully albeit a slower pace.
Taking the above into considerations, I still like to hold out the view that NIO is not doing too badly.
Of course, it could do much better when Management realizes the need to value its resources and not spend with wild abandonment.
Will 2024 be the year NIO declares a profit? Afterall, Li Auto have bagged 2 consecutive quarters of Net Income in the green already. Wake Up, NIO !
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Do you think NIO will hand in a credible Q4 2023 earnings report?
Do you think NIO will be able to net a positive Net Income in 2024?
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