NIO faces a road bump: 5 highlights from the Chinese EV maker’s 1Q22 results

What happened?

NIO’s share price fell by almost 8% at the market open after the Chinese electric vehicle (EV) maker reported its 1Q 2022 results. 

Investors were disappointed by the decline in gross margin as raw material prices went up. There was also not much to cheer in the company’s guidance for vehicle deliveries and revenues in 2Q 2022. 

More encouragingly, the NIO’s expected new vehicles launches this year remain on track, and the company achieved an “all time high order flow” in May.  

Here are five highlights from NIO’s latest 1Q22 earnings you should take note of.

#1 - Decline in gross margin

NIO’s gross margin fell to 14.6% in 1Q22 from 19.5% a year earlier and 17.2% in 4Q21. 

CEO William Li said that this was due to higher commodity prices which have continued to squeeze margins. 

Check out our earlier article about why NIO faces near-term headwinds from higher battery costs.

However, the company expects Nio’s gross margin to begin to recover in the third quarter as offsetting cost cuts take hold.

#2 - Disappointing revenue guidance for 2Q22

Management expects revenue to be between RMB 9.34bn to RMB 10.088bn (US$ 1.47 bn to US$1.59bn). This is below the current market expectation of US$1.79bn. 

In other words, the expected revenue growth of 10.6-19.4% YoY in 2Q22 is way below what the market expecting of 37.4%!

#3 - Deliveries will slowdown in 2Q22

Covid-related lockdowns in China are expected to lead to a slowdown in deliveries in 2Q22.

NIO expects deliveries to reach between 23,000-25,000 vehicles in 2Q22. This would represent a decline from 25,768 vehicles delivered in 1Q22.

With just over 12,000 vehicles delivered in April and May, this means that the company expects a particularly strong June with about 12,000 vehicles expected to be delivered. 

Even with the catch up in June, deliveries in 2Q22 is expected to grow at just 5-14% YoY, a sharp slowdown from the growth of 28% in 1Q22. 

#4- New model launches on track

NIO confirmed plans to launch the ES7 SUV later this month, with deliveries expected from August this year. The ES7 is a new upscale, five passenger SUV. 

The company’s new factory has started pre-production of its upcoming ET5 sedan, which is expected to be launched in September this year. 

#5- Demand for electric vehicles remains high

NIO shared that demand for electric vehicles remained strong even with the Covid-19 disruptions in China. 

According to the CEO Li, Nio “achieved an all-time high order flow” in May.

Why should we care? 

Chinese stocks have bounced strongly in the past week with increasing optimism that the regulatory clampdown is coming to an end.

This started with the news that the regulatory probe into Didi is coming to an end. 

Soon after, Chinese regulators approved the publishing of a number of video games, the first since July 2021. This was seen as a further sign of a softening of its regulatory stance. 

Thereafter, Bloomberg reported that Chinese financial regulators have started early stage discussions on a potential revival of Ant Financial’s listing. The bounce in Alibaba’s share price proved to be short lived as the news was rebutted by Chinese regulators.

While regulatory concerns appear to be easing, Nio’s results have showed that the risks from higher raw material prices are still there. 

With inflation at the back of everyone’s minds, it might be worth thinking through which companies will be most significantly impacted by such cost pressures. 

Image credit – Rafael Henrique – stock.adobe.com