NIO’s Share Price Jumps Post Q3 Earnings – A Time to Buy?

December 6, 2023

Nio Inc. (NYSE: NIO) (SEHK: 9866) (SGX: NIO), the Chinese electric automaker, has seen a significant uptick in its share price, rising 4% in pre-market trading following the release of its third-quarter earnings report.

The positive momentum extended to today, marked by a 5.8% rise in its share price on the Singapore Exchange (SGX), where it holds a secondary listing.

The uptrend occurred despite some earnings misses, as the financial report highlighted decreasing losses and a consistent journey towards enhanced fiscal discipline and profitability.

Q3 Earnings Highlights

Nio’s revenue for the quarter was RMB 19.07 billion, slightly below the consensus estimate of RMB 19.4 billion but marking a year-on-year (yoy) increase of 47%.

The adjusted EPS loss was RMB 2.67, underperforming the expected loss of RMB 2.53.

Notably, the net loss for Q3 was RMB 4.6 billion, a 24.8% decrease from Q2 of 2023 but still higher than the same period in 2022.

Operational Efficiency and Market Competition

Under CEO William Li’s leadership, Nio has embarked on optimising its organisation and enhancing efficiency.

Efforts include a 10% workforce reduction due to intense competition in the Chinese electric vehicle (EV) market.

Nio faces challenges from both emerging companies like Xpeng (NYSE: XPEV) (SEHK: 9868) and Li Auto Inc (NASDAQ: LI) (SEHK: 2015) and established players like Tesla Inc (NASDAQ: TSLA) and BYD Company Ltd (SEHK: 1211) (SZSE: 002594)

Financial Outlook and Market Position

Despite the competitive landscape and cautious consumer spending in China, Nio’s projected revenue for Q4 suggests confidence, with an anticipated increase of 0.1% to 4.0% yoy.

Moreover, vehicle deliveries are expected to rise notably in Q4, indicating robust demand, particularly for Nio’s SUV offerings.

Recovery could be on the horizon

The Q3 results and future outlook suggest improving end demand, especially in SUV deliveries.

While a complete rebound in the Chinese EV market may not be immediate, Nio’s performance and guidance for the next quarter appear promising.

Given the sharp decline in Nio’s share prices, I believe that most of the negative aspects have been factored in and the EV player is now well-positioned to beat market expectations.

Competitive Advantage and Economies of Scale

Nio stands out with its diversified model offerings, showing significant delivery numbers in Q3.

The mix of premium smart electric SUV sales over sedans has been a key driver.

The company’s vehicle margin improved to 11% this quarter, indicating better economies of scale going forward.

Buying opportunities emerge, but risks remain

Considering Nio’s strategic initiatives, competitive positioning, and recent performance, it appears to be an opportune time for investors to consider Nio stock.

The company’s focus on operational efficiency, coupled with a diversified product range and improving financial metrics, positions it well for future growth in the competitive EV market.

However, investors should be cautious of some of the key risks despite the potential for growth in the market.

This includes the intense market competition, regulatory uncertainties in the Chinese market, and the company’s ongoing journey towards profitability amidst global economic fluctuations.

Disclaimer: ProsperUs Head of Content & Investment Lead Billy Toh doesn’t own shares of any companies mentioned.

Billy Toh

Billy is deeply committed to making investment accessible and understandable to everyone, a principle that drives his engagement with the capital markets and his long-term investment strategies. He is currently the Head of Content & Investment Lead for Prosperus and a SGX Academy Trainer. His extensive experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

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