To The Moon

$NIO Inc.(NIO)$ $NIO Inc.(NIO.SI)$ $NIO-SW(09866)$ released its first-quarter report yesterday, and the situation looks grim. The stock price dropped by a hefty 6.8%.

Revenue

Specifically, NIO's revenue was 9.9 billion yuan in the first quarter, down 7.2% year-on-year.

The drop in revenue comes from declining sales and falling prices. In the first quarter, NIO sold 30,053 vehicles, down 3% year-on-year.

In terms of price, the average revenue per vehicle was 279,000 yuan, lower than the 280,000 yuan in the same period last year, which mainly due to price cuts and the increased share of lower-priced models like the ET5.

Profit and Expenses

Due to the price war, NIO's gross margin was 4.9%, better than the 1.5% in the same period last year. The gross margin for vehicle manufacturing was 9.2%, up from 5.1% last year, but still falling short of analysts' expectations of 9.5%.

With such a low margin, NIO still ramped up its promotional efforts, with sales and administrative expenses growing 22.5% faster than revenue. On the bright side, R&D expenses dropped 6.9% to 2.86 billion yuan.

But these high expenses led to huge losses. NIO's net loss was a staggering 5.2 billion yuan in the first quarter! Over the past year, NIO lost a total of 21.2 billion yuan!

Price Cuts

Right now, NIO still has 45.3 billion yuan in cash, down from 57.3 billion yuan at the end of last year. That's a whopping 12 billion yuan burned in just one quarter! Truly a cash-burning monster! Cash splash to the outflow, NIO is still a little unable to put face.

Take its price cuts in the first quarter. Unlike its competitors, NIO never slashed prices directly. Instead, it fiddled with various perks and benefits. For example, in March, NIO adjusted its BaaS (Battery as a Service) policy, lowering the prices of two battery packs.

And for existing customers, the company offered vouchers that could be used to reduce the price of new cars. In the end, by adjusting the battery leasing fees, NIO lowered the upfront car price by up to 70,000 or 128,000 yuan.

Why does NIO make price cuts so complicated?

NIO's CEO Li Bin once said publicly that price cuts actually hurt existing customers. And co-founder Qin Lihong also emphasized, "NIO pursues one-step pricing and won't participate in price wars."

In essence, NIO believes that price cuts are not something a luxury brand should do!

But let's be honest, NIO's average revenue per vehicle is already below 300,000 yuan. There's no need to maintain that luxury brand image and refuse to cut prices anymore!

The convoluted price cuts did help boost NIO's sales, with over 20,000 vehicles sold in May, a record high!

Guidance

But according to NIO's guidance, sales in the second quarter are expected to be between 54,000 and 56,000 vehicles. Even if we take the higher figure, that means sales in June will be at most 19,836 vehicles, a decline from May.

This might worry investors. NIO's price cuts seem to have only provided a short-term boost to sales. Once the discounts end, sales could slump again!

And this concern is not unfounded. NIO already has quite a few models, but none of them are true hits. With financial pressure mounting, NIO has also cut back on R&D spending, slowing down the launch of new models. Now, all hopes are pinned on its new brand, ONVO!

Investors are counting on ONVO, which offers lower prices, to deliver a sales surprise. But whether it will, we'll have to wait and see.

With no major breakthroughs in monthly sales and ONVO yet to hit the market, NIO's stock price is unlikely to see a significant rebound anytime soon!