To The Moon

Yesterday, Nio released its report in Q4 before the US stock market. Revenue for the fourth quarter was RMB 16.06 billion, missing analysts' expectations of 17.1 billion; adjusted net income was a loss of 5.07 billion, which is significantly higher than analysts' expectations of a loss of 3.2 billion:

Nio shares fell 6% in the U.S. and 13% in Hong Kong after the release of the results, hitting a new low since IPO from the Hong Kong stock market.

It’s not difficult to predict Nio's performance, as Nio's pain points have been detailed in the previous articl ”LI's market cap exceeds the sum of NIO and XPEV: The winner of the NEV competition in China!” In addition, from the trend of Nio's share price, it is not only weaker than its peer Li Auto, but also less than the performance of Hang Seng Index.

According to its monthly disclosed sales, Nio has been in crisis for a long term.

Key financial data

1）Revenue

NIO posts record revenue of RMB 16.06 billion, a 62.3% jump from the previous year:

Although quarterly revenue was significantly below analysts' expectations, analysts' expectations were too high to reach.

After the second half of 2022, Nio's newly launched models, such as the ET5 which priced at around $328,000, are much lower than the ES series. Therefore, the revenue per vehicle in Q4 will definitely decline compared to the third quarter of last year.

In this status, Nio's auto sales revenue was only 15.1 billion in Q4, which is lower than analysts' expectations(15.98 billion). So, it's not that Nio's Q4 revenue was significantly lower than expected, but that analysts' expectations were too high.

The actual result for revenue per vehicle was $368,500in Q4, which decline $9,000 from the third quarter of last year;

As the ES series is updated, the ET5 will become a higher percentage of Nio's sales, inevitably leading to a continuously decline in revenue per vehicle.

According to the forcast for Nio,revenue is between 10.94-11.54 billion in Q1 this year with car sales reaching 31-33,000 units. From this projection, the revenue per car may decline to about 320,000, down nearly 40,000 yuan compared to the same period in 2022.

So, Nio's revenue was in line with actual sales in Q4, which is not too bad. However, what surprised the market greatly was profitability.

2) Gross margin

The gross margin was 3.9% in Q4, well below the 13.3% in Q3; gross margin on auto sales was 6.8%.

As new models switch to Nio's second-generation technology platform, production and deliveries are expected to decrease, resulting in a 6.7 percentage point decline in vehicle gross margin and an increase in battery unit costs.

Althoughthe result is justifiable, the impact of the changeover on gross margin was 6.7 percentage points. Excluding this impact, Nio's gross margin on car sales was only 13.5%,which issignificantly lower than Li Auto's 20.2%.

It is so poor in Nio’s profitability that management said that the gross margin could return to 18%-20% inQ4 in2023 at the earnings meeting.

This guidance was not difficult to achieve; however, Nio management has a history of failing to achieveguidance several times. Therefore, the market did not take the gross margin guidance seriously.

3) Expenses

Under the collapse of gross profit margin, Nio's various expenses remained exaggerated in Q4. For example, R&D expenses reached 3.98 billion, accounting for 24.8% of revenue, which is up 118% year-on-year; selling and administrative expenses reached 3.527 billion,which is up 49.6% year-on-year.

With the huge expenses, Nio's net profit for the fourth quarter was a loss of 5.8 billion, far exceeding the 2.14 billion loss for the same period in 2021.

From the view of R&D investment strength, Nio's ambition is great. From the product layout, Nio wants to increase investment in power exchange, making cell phones, the second and third brands and launching more models, all of which have bright prospects; however, whether Nio can survive until the day of success under the huge amount of losses is a question.

4) Sales guidance

Underneath the collapse of profitability in the fourth quarter, there is an even more pessimistic element to Nio's quarterly report, which is the sales guidance for the first quarter of this year topped out at 33,000 units.

The sales for January and February have been released. According to the guideline projection, sales topped out at 12,337 units in March, an increase of only 23.6% year-on-year.

Since the launch of the first model, Nio has launched a number of new models one after another. However, due to various reasons, the monthly sales have always stayed at around 10,000 and were slow to get a breakthrough. With later IPO and fewer kinds of vehicles, Li Auto has broken through the 20,000-unit ceiling for new car makers in early days.

Regardless of the explanation, Nio's management made a big mistake.

Nio needs a breakout model like Li Auto one, L9 to impress investors.

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