NIO stock price continues to rally amid record-high vehicle deliveries and a positive outlook for Q4 announced in the recent earnings call.
As many companies struggle to improve their financial performance amidst the COVID-19 pandemic, NIO Inc. (NYSE: $NIO) continues to deliver exceptional results. On November 17, 2020, the company announced its Q3 earnings. Here are the main takeaways.
In the earnings call, CEO of NIO, William Li, stated that the company beat its revenue expectations and reached a new record of quarterly vehicle deliveries. NIO has made significant progress in its production of vehicles since the beginning of 2020 with a total delivery of 26,365 vehicles, increasing by 113.7%.
NIO Q3 Earnings Report
CEO William Li stated: “NIO delivered 12,206 ES8, ES6, and EC6, representing strong growth of 154.3% year over year and 18.1% quarter over quarter.”
Total revenues in the third quarter of 2020 were $666.6 million which indicates an increase of 21.7% from the second quarter of 2020. Although NIO is still operating at a loss in the third quarter of 2020, the operating loss is narrower than the previous loss in the second quarter of 2020, ultimately representing an 18.4% decrease quarter over quarter and a 60.7% decrease over the year.
Vehicle sales amounted to $628.4 million thus increasing sales by 22.4% from the second quarter of 2020. The company’s gross margin which represents the difference between revenue and direct costs increased to 12.9% in the third quarter of 2020 as opposed to 8.4% in the previous quarter.
Steven Wei Feng, NIO’s Chief Financial Officer, noted that the company “achieved positive cash flow.” This increase in gross margin will allow the company to potentially raise its total revenue to over $920 million.
There are three essential factors that have made an NIO an attractive investment for investors:
- Increased monthly deliveries
- New Battery Plan
- Positive Outlook for Q4
Increase in Delivery Numbers
NIO announced strong third-quarter delivery numbers. The company delivered 4,708 vehicles, thereby increasing its delivery figures by 133.2% in comparison to last year. In Q3, NIO delivered impressive 12,206 vehicles thereby increasing its delivery numbers by 154.3% from last year.
These deliveries consisted of models such as EC6, ES8, and ES6. Due to the increase in Q3 deliveries, there is a strong possibility of NIO beating expectations for Q4.
NIO expects to deliver between 16,500 and 17,000 vehicles thereby increasing its delivery figures by 35.2% to 39.3% from the previous quarter.
What makes NIO unique from other EV manufacturers?
One of the factors that make NIO a unique EV manufacturer is its new battery program. NIO’s battery-swapping plan, known as Battery as a Service, allows drivers to change/install a fresh new battery pack in a matter of minutes.
Although drivers will have to change their battery packs at special Power Swap Stations, this new plan helps reduce the cost of their vehicle by $10,000. The purpose of this plan is to help address the refueling issues that drivers can face while on the road.
During the earnings call on November 17th, the company announced that it is adding a 100 kilowatt (kWh) battery pack as an upgrade option to its subscription battery-swap service. If the consumers decide to purchase their vehicle without the 100 kilowatts (kWh) battery pack and instead choose the option of leasing their battery they will pay a monthly fee for access to battery swap stations.
On the other hand, Tesla continues to gravitate their focus towards charging stations. Could swappable batteries make their way into the United States?
There is not a high chance of that happening for several reasons:
- the US is still relatively new to the electric vehicle arena;
- the US is still building its charging infrastructure, and
- battery swapping stations are expensive to construct.
Although NIO’s stock performance is improving, there are still risks.
Tesla remains a fierce competitor in the Chinese market. NIO’s growth may have been faster than Tesla’s, but there is no accurate evaluation that can be utilized to determine NIO’s worth since the company has not yet announced its profits.
This makes NIO a riskier investment than Tesla, at the moment.
Tesla’s introduction of the Model Y SUV can represent an obstacle for NIO’s vehicles like the ES6 SUV. Especially since Tesla may lower the price for its Model Y. Tesla’s potential reduction in price along with its leading innovative software and preceding reputation could make Tesla’s vehicles more appealing to consumers.
If NIO ever attempts to reduce its vehicle prices in this current stage then it could be detrimental to NIO’s profitability.
Unfortunately, Tesla isn’t the only challenge that NIO faces. NIO still faces intense competition from domestic EV companies, such as Li Auto and XPeng. Similarly, Li Auto and XPeng have also reported strong results and record-high deliveries.
Is NIO a stock to buy?
Even though China’s EV market can make it difficult for companies to establish a competitive reputation, NIO definitely has the potential to remain competitive. NIO must continue to improve its technology, software, and vehicles to maintain a competitive edge.
Although NIO may face strong competition, NIO’s business outlook, innovation, and desire to launch its vehicles in the European market will make this company a more attractive investment for investors.
Investors no longer have to worry about President Trump’s aggressive approach to China on issues such as trade and technology. Since Joe Biden has been declared the President-Elect, we can anticipate that Biden may take a more moderate approach towards China which could prove to be advantageous for Chinese companies.
Although NIO may not have any real profits, NIO has a track record of beating analyst ratings and expectations since the beginning of the pandemic. Based on NIO’s potential market share gain, prominent investment banks, have raised their price targets for NIO.
In fact, JP Morgan Analyst, Rebecca Wen, noted that NIO will be a “winner” and that its “higher valuation can be justified as Nio is leading the transformation of its business model in China’s smart EV market.”
Now is that because NIO has better international ties and is in their pocket or because the banks genuinely believe that NIO is a great company? Time will tell. As of now, it could be wise to bet on multiple horses until a winner emerges.
NIO could be a long-term winner in the premium EV space, potentially with a 30% market share by 2025.
The impressive monthly deliveries and Q3 earnings have justified the increase in the share price. It may be wise for investors to continue to buy NIO Stock on market dips and hold for the long-term.