Nio shares surge despite lingering investment concerns

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electric vehicle nio
William Li Bin, founder and CEO of Nio, spoke at annual launch event Nio Day in Shenzhen on Saturday, December 28, 2019. (Image credit: Nio)

Nio shares swelled by over 50% overnight after the embattled NEV maker posted a surprise bump in revenue to beat Wall Street estimates for the third quarter, thanks to recovering sales and lower spending. 

Why it matters: The latest results suggest Nio has hit a financial turnaround of sorts. Still, the company has yet to reveal new investment plans, and some on Wall Street remain skeptical over whether the rebound is sustainable.

  • The company has made “significant positive progress” on several financing projects, recently installed Chief Financial Officer Feng Wei said during the earnings call without revealing details.
  • A person close to the company told TechNode earlier this month that several domestic companies, including Chinese property developer Evergrande, were interested in buying Nio. Founder William Li was quick to reject these claims.

Details: Nio shocked Wall Street with a 25% year-on-year increase in total revenue to RMB 1.8 billion ($257 million) for the third quarter on strong vehicle sales, beating analyst expectations by more than $23 million.

  • Shares touched a high of $4.87 in Monday’s trade before closing up 53% at $3.72.
  • Net losses narrowed 10% annually to hit RMB 2.5 billion for the quarter.
  • The company delivered 4,799 ES6 and ES8 sports utility vehicles in the three months ended Sep. 30, 35% higher quarter on quarter. Vehicle margins improved to -6.8% compared with -24.1% from the last quarter, but remain 2.5 percentage points lower than last year.
  • Aggressive cost-cutting has helped with a 25.3% sequential decrease in losses from operations to RMB 2.4 billion.
  • CEO William Li said Nio has received over 100 non-refundable orders on average each day over the past two months and expects record deliveries above 8,000 vehicles in the fourth quarter.
  • Li attributed the sales growth to the competitiveness of products and a “vibrant” user community. More than 45% of new orders in 2019 came from existing owner referrals, he added.
  • The Chinese Tesla challenger aims to hit a positive gross margin next year by scaling up deliveries in 100 domestic cities with over 200 capital-efficient sales offices called Nio Spaces.
  • Cash flow continues to be tight with only $274.3 million in cash and equivalents as of September, of which $100 million came from major shareholder Tencent as part of a $200 million convertible bond deal announced earlier this year.
  • The company admits cash balance is inadequate to provide the required working capital and liquidity for continuous operations for the next 12 months.
  • Nio investor Anthony Lin told TechNode that he was not concerned about the company’s cash flow, adding around $400 million revenue from vehicle sales and services is expected for the fourth quarter.

Context: China’s new energy vehicle sales have slid for five consecutive months following subsidy cuts, with November sales falling 37.5% to 95,000 units compared with June, figures from the China Association of Automobile Manufacturers (CAAM) show.

  • Sales growth at Nio indicates the company has been wrestling market share away from competitors in a general slump, Tu T. Le, managing director of Sino Auto Insights, told TechNode on Tuesday.
  • Profits in China’s auto industry for January to November this year dropped 13.9%, according to data from the National Bureau of Statistics.

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