NIO Battles for Survival after Posting Worse-Than-Expected Loss
NIO, China's Tesla, is faced with mounting pressure to turn a profit.
NIO published its second-quarter financial report for 2019 on September 24. The financial report showed that NIO’s net loss in the second quarter was as high as CNY 3.3 billion (USD 482.7 million), and shareholders had negative equity of CNY 960 million (USD 134.6 million).
On September 23, NIO's stock price already plummeted by 10%. After announcing its financial results, NIO's stock price sharply dropped 20% to USD 2.17, with an intraday low of USD 1.97, which was the lowest level in the past 52 weeks.
NIO’s total revenue for the second quarter of this year was CNY 1.5 billion (USD 219.7 million), down 6% from the previous quarter. In the second quarter, the company delivered a total of 3,553 vehicles, of which 3,400 ES8 and 413 ES6 were delivered. The total vehicle sales reached CNY 1.41 billion (USD 206 million), a decrease of 7.9% as compared to the first quarter.
After deducting the cost of vehicle recall, NIO’s gross sales margin for the second quarter was - 4.0%, whereas the number was 7.2% in the previous quarter. The company's net loss was CNY 3.3 billion (USD 482.7 million) which was expected to be CNY 2.9 billion in the market.
Before NIO released its second-quarter financial report, it was reported that NIO’s losses in the past four years had reached about USD 5 billion, which is equivalent to Tesla’s 15-year accumulated loss. Considering the losses disclosed in the latest financial report, NIO’s total losses since its inception in 2014 will reach approximately USD 5.7 billion.
In response to the poor financial performance, Li Bin (李斌), the founder, chairman and CEO of NIO, mentioned in the financial report that the electric vehicle startup optimized resource input and return by implementing comprehensive efficiency and cost control measures within the enterprise. These initiatives would further enhance efficiency and streamline operations in sales and service networks and R&D activities.
Li Bin also said that by the end of the third quarter, the company aimed to reduce the total number of employees worldwide from 9,900 in January to around 7,800. By the end of this year, the company would further enhance operational efficiency through additional restructuring and splitting of non-core businesses.
The company’s financial results are an alarming signal to the management. In the second quarter, the financial report showed that as of the end of June, NIO had total assets of approximately CNY 18.2 billion (USD 265.1 million) and total liabilities of CNY 17.75 billion (USD 258.5), which was close to insolvency.
By the end of June, the company’s current assets amounted to approximately CNY 8 billion (USD 1.1 billion). Current assets refer to assets of a company that are expected to be conveniently sold, consumed, utilized or exhausted through the standard business operations, which can lead to their conversion to a cash value over the next one-year period. Current liabilities reached approximately CNY 8.2 billion (USD 1.2 billion). Current liabilities refer to the total amount of debts that need to be repaid with one year or in a business cycle that is over one year.
In other words, NIO's current assets are smaller than current liabilities, and the current ratio is less than one. The current ratio reflects the short-term solvency of the company.
Moreover, if considering redeemable non-controlling interests, the company’s common stockholders’ equity is already negative. As of the end of June this year, NIO’s common stockholders had negative equity of CNY 960 million (USD 134.6 million).
Earlier this month, NIO announced that it intended to issue and sell convertible bonds with a total principal amount of USD 200 million to investors, and the deal was expected to be completed by the end of September. Tencent’s subsidiary and the company’s founder Li Bin will respectively subscribe for USD 100 million in convertible bonds.
After publishing the financial results, NIO canceled the second-quarter earnings call conference which was supposed to be carried out on September 24. However, subject to investor feedback, the quarterly earnings call conference was reopened on 25.
During the call conference, NIO’s management did not answer any questions about future financing or cash flow as the company’s chief financial officer Xie Dongying (谢东萤) said NIO’s current financing plan was in a positive process and the financial report had given enough information.
NIO explained six points in the conference:
The company did not follow price reduction adopted by most EV companies in July and August after Chinese government reduced its subsidies to the market.
EV recall was a very large expense, involving all aspect of production and transportation, which is a reasonable share of the cost.
Delivering more vehicles is sure to help improve profit margins. But the decisive factor of profit margin is still the manufacturing cost and transportation cost. Negative profit margins are expected in the third and fourth quarters of this year, ranging from -6% to 10%.
NIO Space will be a very economical sales solution with a construction cost of around USD 1 million. More NIO Spaces will be built in small and medium-sized cities.
Free exchange of electricity is sustainable and financially friendly.
NIO’s battery costs are expected to fall by 10%-15% compared to the same period last year, and from now until the fourth quarter of next year, the cost has room to fall in every quarter.
Li Bin clarified the rumor of USD 5 billion in losses at the end of the conference call. He said that some media reported in their unprofessional reports that NIO had accumulated a loss of USD 5 billion, and this was incorrect. The figure he gave was CNY 22 billion, of which 10 billion was spent on research and development.
Last month, Li Bin said in an internal letter: "From this year on, we really entered the qualifying stage. There will be no quick wins, no miracles, and our journey is a marathon on the muddy track. Entrepreneurship has never been easy. In fact, the entrepreneurship of smart electric vehicles is even more difficult. Everyone should be prepared to meet more difficult challenges and more setbacks."