NIO Earnings: What to Expect Next Quarter

Operating in the cutting-edge yet volatile electric car manufacturing sector, Chinese automaker NIO (NYSE: NIO) saw its stock plunge more than 7.7% after reporting its fourth-quarter (Q4) and full-year results for 2020 back on March 1. The temporary dip followed mixed results, with the company beating analyst expectations on earnings per share (EPS) but missing on revenue despite big year-over-year sales gains.

Now investors seem more positive after several weeks of digesting NIO’s report. What kind of results will next quarter’s report bring, and where is NIO headed in the long-term? Let’s take a closer look.

How Wall Street Assesses NIO’s Next Quarter

The consensus of Wall Street analysts for NIO’s Q1 2021, which matches the first three calendar months of the year ending March 31, is to expect overall improvement, though the key metrics involved are expected to stay negative.

Looking at the top line and related figures, the analysts expect revenue to rise slightly, climbing from $1,017.8 million in Q4 2020 to approximately $1,035.2 million. If accurate, this prediction will amount to a $17.4 million rise, or around a 1.7% increase quarter over quarter. Earnings before interest and taxes, or EBIT, are forecast at a $208.3 million loss, while gross margin is expected to slip from 17.2% to 16.3%.

Turning to the bottom line, Wall Street believes GAAP net loss will decline quarter over quarter, from a $228.7 million net loss in Q4 2020 to a $184.2 million loss in Q1 2021. Adjusted net loss is also expected to inch closer to break-even, from a $203.2 million loss in Q4 to $166.3 million loss in Q1. 

For EPS, net loss per share is expected to improve quarter over quarter by two cents in GAAP terms ($0.14 loss versus $0.16 loss) but to worsen by one cent for adjusted EPS ($0.15 loss in Q1 against $0.14 previous quarter loss).

NIO First Quarter Earnings Preview

NIO’s results for the last quarter also help to highlight trends and give indicators of where the company is going, in both the near-term and longer term. The company missed on revenue but beat on earnings per share (EPS), generating a smaller loss per share than expected:

MetricQ4 ResultsYear Over Year Gain (Loss)Analyst ForecastPositive or (Negative) Surprise
Revenue$1,017.8 million133.2%$997.7 million2%
GAAP EPS($0.16)($0.06)($0.10)
Adjusted EPS($0.14)($0.38)$0.24
Vehicle Deliveries17,353111%
Revenue from Vehicle Sales$946.2 million130%
Other Sales (Home chargers, etc.)$71.6 million184.1%

Economies of scale in production and lower raw material prices helped to improve the margin on vehicle sales, too. In Q4 2019, vehicle margin was negative 6%, meaning NIO lost money on each vehicle sold. By Q4 2020, this had become positive 17.2%, with the large-scale production enabling NIO to manufacture each car cheaply enough to turn a profit on the vehicles delivered.

NIO also provided guidance for its expected Q1 2021 results in several metrics. It expects to deliver a total of 20,000 to 20,500 vehicles, boosting deliveries by 15% to 18% compared to the previous quarter, and increasing vehicle sales 421% to 434% year over year from Q1 2020. Vehicle margin will presumably also improve as production efficiency increases.

The company’s guidance also calls for rising revenue, up 11.2% to 13.8% compared to Q4 2020 and skyrocketing 438.1% to 450.8% year over year. 

The $1,131.4 million to $1,158.2 million the company predicts is considerably higher than the Wall Street estimate, cited above, of around $1,035 million in revenue for Q1. CEO William Bin Li said company first-quarter guidance is based on objective current sales figures, noting “strong momentum has continued in 2021 as we achieved a historic monthly delivery of 7,225 vehicles in January and a resilient delivery of 5,578 vehicles in February, representing strong 352% and 689% year-over-year growth, respectively.” 

Investors weren’t electrified by the results, however. In fact, the stock short-circuited, with the market’s initial negative reaction driving a sell-off, sending NIO’s stock value plunging from the $49 to $51 range before the earnings report to approximately $32 per share four days later on March 5. Since then, NIO’s stock has rebounded partially, trading in the low- to mid-$40 range, though it appears to have reached a temporary plateau slightly lower than its prices were between November and February.

NIO seems to owe its rebound to two factors. First, all electric car stocks gained from a battery-related announcement from Volkswagen AG (OTC: VWAGY). Secondly, the Chinese automaker got a jolt of bullish energy from Mizuho Bank. The investment firm rated NIO as a Buy with a 45% upside, assigning a $60 price target far above the $49.94 consensus price target from 17 Wall Street analysts reported by MarketBeat.

Mizuho explained its reasoning in a research note, calling NIO “a leader and innovator.” The bank pointed to the car maker’s home country as a big advantage, noting “it is domiciled in China, the largest and most prolific EV market globally.” It also singled out one of NIO’s innovations as a source of strength, saying NIO benefits from “a key differentiation from peers: a premium EV offering with a lower cost of ownership through its novel Battery-as-a-Service battery swap module” as a driver of sales going forward. Investors apparently took Mizuho’s words partly to heart, bidding up the stock again but remaining cautious about pushing it higher to its pre-earnings report level.

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Looking Beyond NIO’s Q1: Is It a Buy for Long-Term Investors?

Given the strength of NIO’s reported sales for January and February, it appears likely the car company could reach its Q1 guidance, surpassing the cautious, somewhat pessimistic forecasts of Wall Street for the Chinese automaker. Warming March weather and improved driving conditions likely drove sales at least matching January’s, coming close to topping NIO’s prediction of 20,000 deliveries. If the company does indeed surprise positively on both revenue and EPS, as seems likely, look for a jump in share value as hesitant investors buy back into the stock.

Longer-term, several factors also potentially support a rosy view for NIO. Achieving positive vehicle margins means the company is now delivering enough vehicles for its manufacturing costs to scale, driving per-unit costs down below the threshold needed for its sales to add to the bottom line, rather than pushing it deeper into loss. Lightning-fast home charger sales growth suggests a trend toward adopting electric cars among Chinese consumers.

Finally, Yahoo! Finance and The Wall Street Journal report rising political tensions between the United States and China are causing problems for NIO’s rival Tesla (NASDAQ: TSLA). The Chinese, fearing national security leaks, are restricting use of Tesla vehicles by anyone connected to the government, giving NIO a large potential market free from competition by Tesla or any foreign EV manufacturer. Both in the short and longer term, the facts appear to support a moderately bullish case for NIO, suggesting it may indeed have the spark of success.

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