Shares of Nio decreased 8.2% to $3.83 by market close on Thursday, after the company reported a mixed first quarter with revenues that slumped more than half from a previous quarter, and yet slightly beat analysts’ expectations with a narrowed loss.

However, the company says they expect leapfrog growth in the second quarter with an “all-time high in quarterly deliveries” of up to 158% growth quarter-on-quarter in Q2, or around 10,000 cars. The EV maker claimed it has witnessed “a solid recovery” in sales, with deliveries more than doubled to 3,155 units in April from a month earlier.

The Chinese electric vehicle maker opened 44 new franchise stores over the first three months of this year, expanding its sales network of more than 110 stores with some clubhouses across 76 domestic cities.

During the earnings call on Thursday, founder and CEO William Li said the company is confident in further reducing losses to achieve a vehicle margin of 5% by the end of the second quarter. A gross margin of 3% is also part of the plan, which was -12.2% as of March and has remained negative for five seasons.

“We maintain the guidance of double-digit profit margins by year-end and so far we are confident to achieve it,” Li said, adding its series of cost control measures have made significant improvement in operating efficiency, cost of car parts including battery, and production rate since late last year.

Expanding production

Losing more than RMB 11 billion last year on operations, Tesla’s Chinese rival is still bleeding cash to make cars. According to its annual report released last month, Nio has paid a total of RMB 604.4 million to manufacturing partner JAC Motors to compensate for losses over the past two years.

However, it is now poised to expand its business, revealing plans to increase production capacity by up to one-fourth to 5,000 units every month around September, the company said on Thursday. Its joint plant with JAC has a monthly production capacity of 4,000 cars, but, at the moment, only 3,500 cars “at the most”, according to Li, come off the line each month due to a wide disruption in auto supply chain caused by the Covid-19 outbreak.

Image credit: TechNode/Jill Shen, Source: Nio, China Passenger Car Association

“Users have been waiting for deliveries . . . and we will strike a balance between order growth and our expansion plan from a long-term perspective,” said Li, who declined to reveal specific growth numbers over the past 30 days, while adding that a series of marketing events including livestreams gave “strong momentum.”

Hanging on by a thread in the absence of major financing for more than a year, Nio highlighted that it has found a financial lifeline that will “be sufficient to support” its operations in the next twelve months.

Nio vs Tesla

In a months-long market slump now extended by the pandemic, competition has become increasingly intense in the Chinese EV market. What’s more, as Tesla has been ramping up production of locally-made Model 3 sedans, the offline battle is now being extended to the online space.

The US EV giant last month opened its flagship store in Alibaba’s B2C marketplace Tmall in bid to expand its reach online, and soon secured 2,600 orders for test drive from 4 million viewers in a one-hour webcast by a Chinese livestream celebrity.

Nio fought back immediately with the help of Wang Hang, a national TV personality, in a livestream last week that attracted an audience of more than 20 million. More than 5,000 people signed up for a test drive and 320 made car orders, the company claimed.

Facing multiple consumer lawsuits in an alleged plot to offload sales for new models, Tesla is still dominating the Chinese EV market with deliveries of more than 16,000 vehicles in the first quarter, according to figures from China Passenger Car Association. Local EV startups such as Xpeng have also joined the battle. The company last month launched what it claimed to be China’s longest driving range only priced at a third of a Tesla Model S.

Winning with subsidies

Nio expects to close the $1 billion funding from a group of state-owned investment firms by the end of second quarter, with increased policy support from the Chinese government. It last month became the only premium automaker remaining eligible for the government subsidies on EV purchase due to its battery swapping technologies.

EVs priced at RMB 300,000 and above will be disqualified from the purchase incentives effective starting July 22, but those with swappable batteries will not be affected, Beijing says. Li said the company is accelerating the development of power service solutions in line with the new government policies and expecting a release in the second half of this year, without giving further details.

China will expand the construction of charging and swapping infrastructure to boost EV consumption, Miao Wei, minister of Industry and Information Technology told Chinese media during the country’s annual political gathering on Monday. Credit Suisse last month estimated a 33% year-on-year growth of EV charging stations to 48,000 by end of this year, as both public and private sectors are investing heavily to ease the bottleneck for EV uptake.

Correction: An earlier version of this story incorrectly said that more than 400 million viewers watched a webcast about Tesla’s made-in-China Model 3 on Alibaba’s online marketplace. The number of views for the livestream was 4 million.

Jill Shen

Jill Shen is Shanghai-based technology reporter. She covers Chinese mobility, autonomous vehicles, and electric cars. Connect with her via e-mail: jill.shen@technode.com or Twitter: @yushan_shen