Chinese electric-vehicle maker NIO (NYSE:NIO) reported on March 5 that despite good sales, it lost more money than analysts expected in the fourth quarter of 2018, and it expects deliveries to slow in 2019.

While NIO's $499.7 million in revenue came in ahead of Wall Street estimates, its net loss of $509.5 million, or $0.49 per American Depositary Share, fell short of the $0.32-per-share average estimate of analysts polled by FactSet.

NIO's shares fell sharply in after-hours trading after the news was announced.

A light-blue NIO ES8, an upscale electric SUV with angular styling.

Sales of NIO's ES8 were stronger than expected, but profit fell short of estimates. Image source: NIO.

NIO's fourth-quarter earnings: The raw numbers

NIO is based in China and reports its results in yuan. But because its stock is listed in the United States, it provides U.S. dollar equivalents for key figures in its earnings release using the exchange rate that was in effect on the last business day of the fourth quarter, Dec. 31 ($1 = RMB 6.8755). Results in the chart below are shown in U.S. dollars, calculated at that exchange rate.

Metric Q4 2018 Q4 2017
Revenue $499.7 million 0
Vehicles shipped 7,980 0
Gross margin 0.4% 0
Operating profit (loss) ($501.3 million) ($408.6 million)
Adjusted operating profit (loss) ($501.3 million) ($345.8 million)
Net income (loss) ($509.5 million) ($408.9 million)
Net income (loss) per American Depositary Share ($0.49) NA

Data source: NIO. "Adjusted" figures exclude share-based compensation expenses.

What happened at NIO in the fourth quarter

NIO hit several key milestones in the fourth quarter, its second quarter as a public company:

  • It completed the second full quarter of production of the ES8, an upscale electric SUV, and delivered 7,980 to customers. That put the company over 10,000 for the year: NIO delivered a total of 11,348 ES8s in 2018. Both of those delivery totals exceeded NIO's previously announced targets.
  • In December, NIO revealed the ES6, a smaller SUV that will go into production in June of this year. The ES6 is a compact "two-row" (five-passenger) upscale electric crossover SUV with up to 510 kilometers (about 316 miles) of range and a starting price around $52,000.
  • The higher-than-expected delivery total meant that NIO exceeded its guidance for fourth-quarter revenue.
  • As of the end of 2018, NIO had RMB 8.345.6 million ($1.214 billion) in cash and equivalents on hand.

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What NIO said about the year ahead

2018 was a good year for NIO, but 2019 might not go as well. The company had expected deliveries to slow in January and February, because some sales were "pulled ahead" to December in anticipation of a reduction in electric-vehicle subsidies in 2019 and because of the Chinese New Year holidays. But deliveries of 1,805 vehicles in January and 811 in February were lower than it had expected, as the Chinese new-vehicle market has continued its slump into 2019.

In part because of that slowdown, and because of its concerns about the Chinese economy in the year ahead, NIO has shelved its plans to build its own factory. Right now, NIO's vehicles are built under contract by JAC Motors at a plant near Shanghai. NIO had planned to build its own factory, to open in 2020; it has decided that it will continue its joint-manufacturing arrangement with JAC for at least the next 2 to 3 years, the company said in a statement.

CFO Louis T. Hsieh said that he's not optimistic about sales in the near term:

We expect a greater than anticipated sequential decrease in deliveries in the first quarter 2019, partially due to accelerated deliveries made at the end of last year in anticipation of EV subsidy reductions in China in 2019, as well as the seasonal slowdowns surrounding the January 1st and Chinese New Year holidays. We also expect deliveries in the second quarter 2019 to reflect continued weakness as we await the results of the 2019 EV subsidy policy in China and improvement in the macro-economic conditions.

On the positive side, he said, the ES6 will likely begin to give results a boost as soon as show cars begin to arrive at the company's factory stores in May. Production of the ES6 is expected to begin in June.

NIO's guidance for the first quarter of 2019

For the first quarter of 2019, NIO currently expects:

  • Deliveries of between 3,500 and 3,800 ES8s (Q4 2018: 7,980)
  • Revenue between RMB 1,390.9 million ($202.3 million) and RMB 1,515.7 million ($220.5 million). For comparison: Q4 2018: RMB 3,435.6 million ($499.7 million).