5 Key Takeaways From Nio's Q2 Earnings Call: New Models, Supply Chain Issues, Overseas Foray And More

Nio, Inc. NIO reported forecast-beating second-quarter results and issued solid guidance for the current quarter.

Here are a few key takeaways gleaned out of Nio's earnings call.

1. Product Portfolio: Nio is confident of meeting the ET7 delivery schedule of 2022, with the vehicle having gone through a series of rigorous tests of vehicle functionality, performance and homologation.

The company is stepping up efforts for launching a mass-market vehicle under a different brand and has assembled a core team for the purpose. The relationship between the Nio brand and the mass market brand is like between Audi and Volkswagen AG VWAGY and the Lexus with the Toyota Motors Corporation TM.

The company expects to launch products that can have competitive pricing compared with Tesla, Inc. TSLA, but to have much better products and services.

Nio plans to deliver three new models, including the ET7, by 2022. These models will use Nio Technology 2.0.

2. Margin Trajectory: The quarter-over-quarter slippage in vehicle margin is due to the decline in the average selling price by about 8,000 yuan ($1,235) per vehicle in the second quarter due to higher ES6s sold in the quarter.

The company expects a 2% gross profit margin impact per vehicle in the second half of 2021 due to its plan to shorten the depreciation and amortization period for its existing products in the wake of the three new products it plans to deliver in 2022.

On the Nio Technology Platform 2.0, the vehicle gross margin target is likely to be at the level of 25%.

The company targets capital expenditure of 5 billion yuan in 2021.

Related Link: Nio, XPeng, Buffett-Backed BYD Among Top Quality EV Brands In China: Survey

3. Software & Services: Take rate of Nio Pilot, its proprietary advanced driver assistance system, exceeded 80% in the second quarter. Gross margin contribution from the increased uptake of Nio Pilot is around 2%-3%.

The company plans to release the Nio OS 3.0 in late August and it will have a fresh new look of user interface design, new features and further optimization of existing functions.

Nio now has 25 Nio Houses and 243 Nio Spaces in 128 cities in China, and it has deployed 361 swap stations in 103 cities.

The company has completed over 3 million battery swaps for its users. Nio reaffirmed its plan for increasing the battery swap stations to over 700 by the end of 2021 and to over 4,000, globally, by the end of 2025.

4. Overseas Expansion: The first batch of ES8s that have been shipped to Norway will arrive in the country by mid- to late-August, allowing preordering and delivery in September.

Nio Apps, Nio Life, Nio House, Nio Power and Nio service and delivery centers will be available to Norwegian users by September.

Contribution from Norway toward deliveries may not be significant this year.

The company has appointed a CEO for Europe, who has been building up the team for Nio Europe. The company also plans to enter more markets in Europe including Germany.

5. Supply Chain Issues: Since July, COVID-19 and adverse weather events have impacted global supply chain.

The company said its supply chain partners, including a just-in-time component supplier in Nanjing, China, chip suppliers in Malaysia and German suppliers were all impacted. Delivery volume in the third quarter will largely depend on the overall capacity of the supply chain, the company said.

At last check, Nio shares were down 2.5% at $42.83.