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NIO sells its electric cars only in China.
Greg Baker / AFP via Getty Images
Shares in Chinese electric car maker NIO fell Tuesday morning after the company reported second-quarter sales that were better than expected. Despite the reaction, the report is another good data point for the EV sector, showing that Chinese demand for EV and EV penetration rates continue to improve from pandemic-induced lows.
NIO (ticker: NIO) lost about 16 cents a share – NIO reports figures in Chinese currency – of about $ 526 million in sales. Both figures are better than analysts expected. NIO is not yet profitable. Revenue is less than sales at this point in the company’s history. Sales exceeded estimates by about 6%.
What’s more, gross profit margins were better than leadership for management. “With the strong momentum of quarterly deliveries, increase in the average sales price, reduction of battery pack and other [compensation] cost and improvement of manufacturing efficiency, our gross margin increased substantially in the second quarter, ”said CEO William Li at the call of corporate services. That’s another positive for investors to take away from the quarterly report.
NIO shares were down 3.1% to $ 13.77. Expectations were high after a gain of 280% over the past three months. Year to date, equities are roughly 250% up, much better than comparable returns of the S&P 500 and Dow Jones Industrial Average. Other EV stocks have done just that. Tesla (TSLA) shares are up about 240% year-on-year to date.
Gains have made Tesla the most valuable automotive company in the world, and its success has helped all EV files, including NIO.
Outlook expects NIO to deliver 11,000 to 11,500 cars in the third quarter, more than 125% year over year. NIO sells cars only in China and is supplied by analysts stationed abroad. This makes it harder to get estimates of car delivery and guidance compared to the expected figure. Figures for companies based on FS are easier to obtain. Tesla analysts, for example, expect Elon Musk’s company to deliver 146,000 cars in the third quarter of 2020.
The question-and-answer period during the earnings conference call did not address much new ground. Analysts asked about technology for autonomous driving, general demand – which was strongly cited by business management – and profit margins.
An interesting question was asked about expansion abroad. Management said it would expand overseas, but did not provide details.
NIO cars use battery exchange technology, in addition to traditional plug-in EV charging. If you can swap battery packs, owners can keep one charge at all times, which lowers the car for charging. An infrastructure for exchanging EVs is not required to sell NIO cars abroad, but it may represent a small planning windfall for the company to consider.
Overall, investors do not have much to complain about. Nevertheless, the antithesis of the stock reaction may be harsh, although it has been quite predictable with NIO. Shares have fallen after five of the past seven quarterly reports.
In the short term, Wall Street – as the Chinese equivalent of Wall Street – is a game of expectation.
Write to Al Root at [email protected]
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