NIO Caught Investors by Surprise with Increased Losses and Deliveries Slowdown
NIO, the Chinese luxury electrical vehicle brand, has published its Q4 2018 Earnings today. The company has registered USD 499.7 million of total revenues in Q4 2018.
March 5, 2019/EqualOcean/- NIO (蔚来), the Chinese luxury electrical vehicle brand, has published its Q4 2018 Earnings today. The company has registered USD 499.7 million of total revenues, surpassing its original expectation between USD 418.5 million to USD 436 million. However, the company has caught many investors by surprise with its wider-than-expected operation loss and net loss in Q4 2018. The company also reported a slowdown on delivery amount in Jan and Feb 2019.
NIO has impressed us with its first earnings report published last November. The company generated net revenues since it has started deliver ES8 SUV last June. The latest quarterly results stand out obviously: the company generated CNY 3,435.6 million (USD 499.7 million) in Q4 2018, representing an increase of 133.8% from Q3 2018. Total revenues were CNY 4,951.2 million (USD 720.1 million) for the full year 2018. With that, the company generated a positive 3.7% gross profit in the reported quarter for the first time, representing an increase of 137% from Q3 2018.
The company’s loss from operations increased by 22.7% to USD 501.3 million compared to the third quarter of 2018. The company also reported USD 49 cents for both basic and diluted net loss per ADS attributable to ordinary shareholders.
We have seen a continuous increasing trend of net loss to ordinary shareholders until Q3 2018, which decrease for the first time by 64% (QoQ) and 26.4% (YoY). Adjusted basic and diluted net loss per ADS (non-GAAP) were both RMB 3.2 (USD 0.47), declining by 69.1% compared to Q3 2018.
NIO generated USD 720.117 million in 2018 but ultimately USD 1.3 billion losses, which increased 93.71% compared to 2017.
All about Production Capacity
“We remain confident that our Q4 deliveries will be in the range of 6700 to 7000 vehicles,”according to NIO Chief Financial Officer Louis Hsieh on Q3 2018 Earnings Call. The company made it indeed but somehow could not maintain the uptrend in delivery in the beginning of 2019.
Deliveries of the ES8 in January and February 2019 were 1,805 and 811 vehicles respectively, drastically declining from that of December 2018.
NIO claimed that it was caused by accelerated deliveries made at the end of last year in anticipation of EV subsidy reductions in China in 2019, the seasonal slowdowns surrounding the January 1st and Chinese New Year holidays, as well as the current slowdown of macro-economic conditions in China, particularly in the automotive sector.
Total passenger vehicle sales in January was 2.02 million units, falling 17.7% year-on-year, the biggest drop since the market began to contract in Jun 2018 (see more in this article).
The company also expects a weakness delivery in Q2 2019 also because of macroeconomics and subsidies policy reasons but anticipates, more ES6 backlog orders to increase in May, when NIO will hold an ES6 show at NIO House.
NIO has a five-year agreement with JAC (also known as Anhui Jianghuai Automobile Co.). JAC will produce cars for NIO and NIO shall pay JAC for each vehicle produced on a per-vehicle basis monthly for the first three years. NIO is also obligated to compensate JAC for any operating losses.
"Cost of sales with respect to vehicle sales also includes compensation to JAC for actual losses incurred at the Hefei manufacturing plant where the ES8 is manufactured," NIO said in its prospectus.
NIO has the NIO/JAC plant in Hefei, which remains as NIO’s long term manufacturing plan, according to the company. JAC Motors made 12,775 ES8s in 2018, and 11,348 of which were delivered last year, beating the EV startup's own targets for the first year of production, according to the company.
NIO signed framework agreements and memorandums with the government and related entities in Jia Ding, Shanghai in 2017, however, NIO has agreed to terminate the plan recently, which addresses some concerns on the company's sustainable production capability, even gross profit margins were positive in Q4 2018. It seems that NIO's Shanghai factory wasn' t supposed to open until at least 2020.
The company continued to invest in its existing factories and offline stores last year. The value of the property, plants and equipment in 2018 was increasing by 154% amounting to CNY 4.85 billion (USD 705.862 million) compared to 2017.
More than Service
Customers with the intention to buy an ES8 have two-three cars averagely, half of which have possessed new energy vehicles and one-quarter of them have a Tesla, according to a survey conducted by Auto Home.
LI Bin (William LI, 李斌) once claimed that the company will never give up any chance to serve its customers. NIO is in charge of the whole after-sale including battery release, charging, and maintenance while traditional carmakers usually contract with dealerships or third-parties for such services.
The company has 295 power trucks covering 21 cities, swap stations within 16 cities at the end of September 2018 and 76% of users who can install the home chargers, according to its Q3 2018 Earnings Call.
Users are interacting with the company in different ways with that of traditional manufacturers. NIO APP has 700,000 registered users and 199,461 DAU (Daily Active Users), according to data released on 2018 NIO Day. Insiders commented that it was an impressive number for buying a car which is a big purchasing with low frequency, according to an article shared by iyiou.com. NIO App’s main functions are to provide sales consulting for potential clients and owners usage instructions for owners. Community, information and car models selling are derivative functions. It’s a comprehensive APP that has service, community, media and shopping functions. NIO App is like a combination of WeChat, Toutiao, and Taobao.
It’s not a type of marketing tool, a derivative of its offline service or another official site based on smartphones but a membership system that connects NIO's whole service system. As the company claims in its prospectus, “We believe our online and offline integrated community which is developing from our NIO Houses and mobile application will retain user engagement and cultivate loyalty to our brand. ”
All these signals lead us to a conclusion: there is a large number of people using the NIO App, current car owners can contact with Nio officers conveniently from a single touch and potential customers can know more about ES8, ES6, and NIO when they are going through the randomly published posts.