NIO Q1 2019 Results Reveal Challenges

NIO Q1 2019 Results Reveal Challenges


Challenging conditions in China are affecting NIO. Only 2,800-3,200 ES8/ES6 to be sold in Q2.

Chinese premium electric car manufacturer NIO released financial results for the first quarter of 2019 which reveals several interesting things.

First of all, the company sold in Q1 3,989 NIO ES8, which translated into a negative gross margin of 13.4%:

  • ES8 deliveries – 3,989
  • Revenues of RMB1,631.2 million (US$243.1 million)
  • Net loss was RMB2,623.6 million (US$390.9 million)

In April, ES8 experienced “a greater than anticipated slowdown” to 1,124 sales (5,113 YTD). NIO explains the slowdown by lower subsidies and general macro-economic conditions.

“Deliveries of the ES8 in April 2019 were 1,124 vehicles, which reflected a greater than anticipated slowdown in monthly deliveries primarily due to the electric vehicle (EV) subsidy reduction announced in late March, as well as the slowdown of macro-economic conditions in China which has been exacerbated by the US-China trade war, particularly in the automotive sector where wholesale passenger vehicle sales were down approximately 15% year on year from January to April 2019, compared to the same period of last year.”

NIO ES8 sales in China – April 2019

NIO news

The near-term perspectives for NIO also are not too optimistic as NIO wrote:

“Looking ahead to the second quarter, we expect an even more challenging sales environment and anticipate overall sequential demand and deliveries to decrease, as competition continues to accelerate and the general automobile market in China remains muted. Against this backdrop, NIO is focusing on rolling out our ES6 nationwide, and at the same time, improving overall network utilization and operating efficiencies.”

NIO expects that sales in Q2 2019 will amount 2,800-3,200 cars, which is probably quite accurate as we are already through April and almost the entire of May.

However, the number includes both the ES8, and new ES6 (up to several hundred planned for June). The decrease in sales to an average of 1,000 per month will result in further net losses, we assume.

Business Outlook

For the second quarter of 2019, the Company expects:

  • Deliveries of vehicles to be between 2,800 and 3,200 units, representing a decrease of approximately 19.8% to 29.8% from the first quarter of 2019. This outlook incorporates the planned deliveries of several hundred ES6s in June 2019. 
  • Total revenues to be between RMB1,134 million (US$169 million) and RMB1,294 million (US$193 million), representing a decrease by approximately 20.7% to 30.5% from the first quarter of 2019.

In case of ES6, NIO already received more than 12,000 pre-orders (refundable deposit orders), including over 5,000 since the Shanghai Auto Show began five and a half weeks ago.

The production of ES6 recently started at JAC production plant:

“In April 2019, the Company entered into a manufacturing cooperation agreement with Jianghuai Automobile Group Co., Ltd., or JAC, for the manufacture of the ES6, which is a supplement to the agreement that Company entered into with JAC in May 2016. Pursuant to these agreements, the Company pays JAC manufacturing fees on a per-vehicle basis monthly and compensates JAC for its operating losses for the initial three-year period after the start of production of the ES8 from April 10, 2018. The Company may fund additional investments in equipment in the Hefei manufacturing plant of JAC for the production of the ES6.”

In the future, NIO intends to introduce a third electric car model in 2020, based on the same platform as the ES8 and ES6.

The further models, including the ET7 concept from Shanghai, will be based on a next-generation platform 2.0 (NP2) platform and produced at a new NIO manufacturing facility, for which the company seeks funding.

“In April 2019, the Company showcased a preview version of the ET7, its high-performance premium electric sedan, at the Shanghai Auto Show. Recently, the Company made the decision to design and develop the ET series with the future NIO NP2 platform, our next generation product platform featuring Level 4 autonomous driving capabilities, and will provide an update on the launch timeline of the ET series in the future. Meanwhile, the Company plans to leverage the platform technologies from the ES8 and ES6 to create a new model design and expects to launch the third vehicle model in 2020.

“In May, the Company entered into a framework agreement with Beijing E-Town International Investment and Development Co. Ltd. (“E-Town Capital”), an investment corporation headquartered in Beijing Economic-Technological Development Area (BDA). Pursuant to this agreement, the Company will establish an entity, NIO China, in Beijing Economic-Technological Development Area and contribute certain businesses and assets into NIO China, while E-Town Capital will initially target to invest up to RMB10 billion through its affiliated entities or jointly with third parties in NIO China in exchange for a minority equity stake of NIO China. Furthermore, it is expected that E-Town Capital will help NIO China to build or to find third-party partners to build a new manufacturing facility for the Company’s next-generation platform 2.0 (NP2) vehicles. The parties are continuing to work towards a final binding definitive agreement for this investment.”

One other way to expand the business is the joint venture with GAC, which soon will result in a new all-electric Hycan brand on the market.

“In April 2018, the Company, together with NIO Capital, Guangqi New Energy Automobile Co., Ltd., and Guangzhou Automobile Group Co., Ltd, or GAC, established a joint venture company, GAC-NIO New Energy Vehicle Technology Co., Ltd., or GAC-NIO, to mainly engage in electric vehicle and parts development, sales and services. William Li, NIO’s founder, chairman and chief executive officer, is also serving as the chairman of GAC-NIO. On May 20, 2019, GAC-NIO announced its new brand, Hycan He Chuang, and plans to launch its first vehicle model this year. The Company expects to work strategically with GAC-NIO in a variety of areas including technologies, supply chains and service networks.”

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