Nio shares tumble as losses widen

4 min read
William Li, founder, chairman and CEO of Nio (Image credit: Nio)
William Li, Nio’s founder, chairman and CEO (Image credit: Nio)

Shares in Nio plummeted in US trading this morning after the Chinese EV maker posted concerning financial results for the second fiscal quarter. The firm continues to bleed money as its net loss widened one-fifth on a quarterly basis to RMB 3.3 billion ($478.6 million) amid a contracting market, intensifying competition, and a spate of car fires.

Despite beating analyst forecasts, revenue slid 7.5% quarter-on-quarter to $206.1 million. The Shanghai-based firm has run up RMB 40 billion (5.6 billion) in losses since 2016, according to company figures.

Grim reading

Often referred to as the “Tesla of China,” the US-listed carmaker’s shares were down 25% at the time of writing, wiping $650 million off the company’s market capitalization. The company delivered 3,553 vehicles delivered in the period, narrowly beating its previous guidance by about 300 units. However, the company lost $0.45 per share for the second quarter, more than double an expectation of $0.18.

Nio canceled its earnings call immediately after the release. A company representative promised further disclosures depending on any future developments when contacted by TechNode on Tuesday.

Company founder and CEO William Li confirmed plans to slash Nio’s global workforce by more than one-fifth today. “We target to reduce our global headcount to be around 7,800 by the end of the third quarter from over 9,900 in January 2019, and aim to further pursue a leaner operation through additional restructuring and spinning off some non-core businesses by year-end,” he said in the announcement.

Nio reportedly internally announced a round of mass lay-offs last month with the aim of cutting 1,200 jobs globally by the end of September with a focus on supporting functions, such as human resources and finance.

Consumer confidence at rock bottom

Nio consumers flinched after three incidences of the company’s cars self-igniting in less than three months. “It is also struggling to create confidence for customers amid a series of bad news,” said Wei Xuefen, a private investor and Nio car owner.

The once-promising EV maker has taken a series of measures to stay afloat since the turn of the year, including several rounds of layoffs and the divestment of its Formula E racing team. Sales started falling in March and analysts question if the company’s restructuring plan will work.

“There is no amount of cost-cutting that will rescue Nio if it can’t get its monthly sales increased significantly,” said Tu T. Le, managing director of consulting firm Sino Auto Insights. Despite the moves, Nio’s non-current liabilities increased more than fourfold over a six-month period to hit RMB 9.5 billion as of the end of June.

Rising costs are also a critical threat to the firm after operating losses surged 72% year on year to RMB 3.2 billion in the quarter. Nio partly attributed the increased expenses to a recall of more than 4,800 flagship ES8 SUVs in late June. “If the cutting is only towards variable costs as employees are, and the company does not address fixed costs, it could open itself to a ‘death spiral’ situation,” Le added.

Pinning hopes on the ES6

Amid an overall cooling in the world’s largest auto market, Nio is betting big on its second production model, the ES6 SUV, which it started delivering in late June. Nio’s most optimistic estimates suggest deliveries could rise 24% sequentially to 4,400 units, while revenue could recover to hit at least RMB1.6 billion in the third quarter.

“We are ramping up the production and deliveries [of the ES6] for the coming months,” said Nio founder Li. “Starting in October, we will begin delivering the ES6 and ES8 with an 84-kWh battery pack, extending their NEDC driving ranges to 510 km and 430 km, respectively,” he added. The EV maker’s deliveries more than doubled to 1,943 vehicles in August and over 90% of them were ES6s.

Nio’s stocks may still have value in the future in the eyes of some investors despite the short-term risks. “What should be noted is that either ES8 and ES6 are made to order and customizable, which usually takes the company to deliver in one to two months,” said Wei who maintains that the company still has a fighting chance thanks to the Chinese consumers’ appetite for premium EVs with good quality and services.

However, the company’s recent developments have raised more concerns about the fate of the Chinese young EV maker. “The most important thing for Nio now is to triple monthly sales at a minimum,” Le said.  “Does Nio really know who are its customers, what they want, and what they’re willing to pay for it? Turnarounds don’t happen if all the efforts are on saving costs,” he added.

Failing to hit sales targets

Nio initially aimed to deliver 40,000 cars this year from its joint plant with Anhui-based automaker JAC Motors. The facility, capable of providing 120,000 units annually, only produced 7,542 motors in the first half.

“Economies of scale is a typical way of lowering costs in the auto sector where a manufacturer can only survive by selling a minimum of 200,000 cars, and that is the case for Nio and its second production model ES6,” said Li Tong, research director at Chinese tech media outlet Huxiu.

Nio announced plans in May to secure RMB 10 billion in funding from an investment firm backed by the Beijing municipal government. There have also been whispers within the industry of a possible acquisition by local OEMs, an industry source close to the company told TechNode. Given the flat sales and huge losses, industry watchers now tend to believe that a Nio’s rescue can only come via a change of ownership.

Major Chinese OEMs are increasingly pursuing “a platform strategy,” integrating young EV makers into their vast networks, said Li Tong, who added that both parties could benefit from more comprehensive coverage of potential customers and better utilization of production, sales, and services.

Wei estimated that consumer confidence could pick up once new funding is in place, though financing is also one of the most significant uncertainties facing Nio. Looking ahead, the company could start approaching OEMs to license its technologies, which would be valuable to other automakers and help to boost revenue, Le said.

“I don’t see them getting out of the hole they’re in without a lot of help,” he concluded.