Nio On The Radar Ahead Of Chinese EV Manufacturer's Q2 Print

Shares of the Chinese electric automaker Nio Inc – ADR NIO are known for their volatility, and on Tuesday, the company is set to post its second-quarter results before the market opens. 

Expectations

Analysts, on average, expect Nio to report a loss of 18 cents per share on revenue of $185 million, down about 24% from the first quarter, when it saw a 52.5% quarter-over-quarter decline in revenues.

The estimated second-quarter loss, would be narrower than the first-quarter loss of 36 cents per share.

Nio guided to second-quarter vehicle deliveries of 2,800-3,200, a 19.8%-29.8% decline from the first quarter, and revenue of $169 million to $193 million, a 20.7% to 30.5% sequential drop.

See Also: Nio Reports Q2 Deliveries Above Guidance

Falling Deliveries, Revenue

After more than doubling to $496.83 million in the fourth quarter of 2019, Nio's revenue fell by half in the first quarter of 2019 as vehicle deliveries slumped due to a host of factors.

Nio, which is often referred to as China's Tesla Inc TSLA, sells two vehicle models: the ES8, a seven-seater midsized SUV launched in June 2018, and the ES6, a five-seater midsized SUV rolled out in June 2019.

Nio had a modest start in the second quarter of 2018, when the automaker sold 100 ES8s, with just three days of sales in the quarter following its June 28, 2018 launch.

Deliveries jumped to 3,268 in the third quarter of 2018.

ES8 deliveries more than doubled to 7,980 in the fourth quarter of 2019.

The first quarter of 2019 saw a roughly 50% decline in deliveries to 3,989 ES8 vehicles, with the company attributing the predicament to reductions in electric vehicle subsidies, slowing macroeconomic conditions, increased competition and seasonal factors around the Chinese New Year holiday period.

Things didn't get better, with Nio reporting 1,124 vehicle deliveries in April, citing the EV subsidy reduction and the macroeconomic weakness that was exacerbated by the escalation of trade tensions between the U.S. and China. Deliveries dipped further to 1,089 in May, although there was a modicum of improvement in June, when it sold 1,340 vehicles.

The June deliveries included 413 ES6 model vehicles launched on June 18. Second-quarter deliveries totaled 3,553, a roughly 10% decline from the first quarter.

In July, the company reported 837 deliveries, including 673 ES6s and 164 ES8s, with a battery recall along with the other usual factors blamed for the weakness.

Reports suggest that deliveries may have improved notably to 2,976 in August, with the higher number attributable mostly to the newly launched ES6 model.

Debt Offering, Layoffs

It came as a no surprise when the loss-making electric vehicle maker announced early this month it is raising debt financing through a private placement of $200 million worth of convertible notes, with the subscribers being its Chairman and CEO Bin Lin and Tencent Holdings TCEHY.

Nio is also striving to rein in operating expenditures through layoffs. After the company laid off 70 employees and closed an office in San Francisco in May, it followed it up with another round of, this time trimming 62 jobs from its Silicon Valley office.

The Stock

After violating the $4 level to the downside on May 28, the stock has been trading between $2.35 and $4. It made an unsuccessful attempt to break above the $4 level on July 10.

The stock is trading below its 50-day and 200-day simple moving averages of $3.157 and $4.985, respectively. The recent strength in Nio stock following positive developments out of the U.S.-China trade talks and reports of a turnaround in deliveries has lifted the relative strength index to a more neutral zone.

Source: Y Charts

Nio's net losses should peak in 2020, but the company is likely to remain in the red until at least 2021, Bank of America Merrill Lynch analyst Ming Hsun Lee said in a recent note.

Lee is bearish on the stock due to the anticipated weakness in deliveries, intensifying competition among electric vehicle makers and high refinancing risk due to weak free cash flow.

The second-quarter results could be crucial, as the stock is waiting to break convincingly above its recent consolidation phase. Delivery numbers hold the key for outperformance, as Nio navigates through company-specific and macro weaknesses.

Photo courtesy of Nio.