NIO Q1 Deliveries Beat Expectations
...while the Luckin collapse is severely impacting a swathe of China concept stocks.
NIO has announced that deliveries of its cars reached 1,533 in March, with 3,838 vehicles delivered in Q1.
The Chinese Electric Vehicle (EV) producer said Q1 car deliveries exceeded the company’s prior guidance range of 3,400 to 3,600. The company plans to start to deliver its all-new ES8, with more than 180 improvements, in April 2020.
As of March 31, the company has rolled out 87 offline stores, including 22 NIO Houses and 65 NIO Spaces. The company has covered 60 Chinese cities and will keep expanding NIO Spaces in 2020. NIO shares rose 11.12% premarket to USD 2.75 at 8:08 am.
The company has experienced a gradual recovery of production since a slack season which it attributes to the Spring Festival and the coronavirus impact. Despite that, EqualOcean predicts the company stock will encounter some bumps in the coming days, primarily driven by a rising concern around Chinese concept stocks and its cash-burning business model.
Investors have concluded that the fallout of Luckin Coffee fraud will continue, dragging down China concept stocks across various industries. NIO and Luckin Coffee have a lot in common – the same type of headlines (say, loss-making and fast expansion), the short historical path to IPO and the same investor (Joy Capital).
“We are bearish on the Chinese companies’ US IPO pipeline, due to Luckin’s misconduct, and we see it becoming much harder for smaller ones (valued under USD 5 billion) to go public in the US. It will further impact overseas investors to be wary of Chinese companies’ accountability,” one PE investor who prefers to stay anonymous said.
On the other hand, whether NIO can break out from a cash-burning game remains in doubt. Two examples – DiDi Chuxing and Meituan Dianping – have lasted longer. Both of them have a large total addressable market to target – urban mobility and catering, respectively. The path to profitability is even harder: DiDi is still suffering from its daily order halving, and Meituan just reached the break-even point in 2019.
“Burning through cash is not suitable or even viable for a startup to compete in a traditional industry. Producing EVs takes years of research and development. It is the same thing for making coffee. Sustained revenue growth and operation ability improvement are more important than scaling fast, ” Zhang Wei, founding partner at Shenzhen-based Co-Stone Asset Management, said.
It is also interesting to note that NIO and Luckin Coffe have another thing in common – they have been good at telling Wall Street an exciting story but have failed to bring in positive cash flows.