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Chinese Tesla Rival NIO Is Running Low on Cash

By John Rosevear - Updated Sep 24, 2019 at 5:31PM

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The company burned more than half of its reserve in the second quarter. Is it at the brink?

In a long-delayed report, Chinese electric-car maker NIO (NIO 1.68%) said on Sept. 24 that it lost about 3.3 billion yuan ($478.6 million) in the second quarter of 2019, as China's new-vehicle market continued to sputter. Wall Street analysts polled by Bloomberg had expected a loss of 2.6 billion yuan, on average. 

Of note, NIO burned through more than half of its remaining cash in the second quarter, raising hard questions about its ability to survive. It said in a statement that it will seek to cut thousands of jobs and spin off some "non-core" businesses before the end of the year. But further questions will go unanswered for now: In a surprise announcement on Tuesday morning, NIO abruptly cancelled its regular quarterly earnings conference call.

A red NIO ES6, a sleek battery-electric compact crossover SUV.

NIO is betting its future on the success of the five-passenger ES6 SUV. Deliveries began in the second quarter. Image source: NIO.

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 also 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 quarter, June 28. ($1 = 6.8650 yuan).

Metric Q2 2019 Change vs. Q1 2019
Revenue $219.7 million  (7.5%)
Vehicles shipped 3,553 (11%)
Gross margin (33.4%) 20 pp lower
Operating profit (loss) ($469.9 million) 23.2% worse
Adjusted operating profit (loss) ($456.5 million) 25.5% worse
Net income (loss) ($478.6 million) 25.2% worse
Net income (loss) per American depositary share ($0.47) $0.09 worse

Data source: NIO. "Adjusted" figures exclude share-based compensation expenses. pp = percentage points.

What has happened at NIO since the end of the first quarter

  • The company recalled almost 5,000 ES8 SUVs to replace defective battery packs. That recall, which cost $49.4 million, added to early customer concerns about the new company's quality.
  • NIO launched its second model, the five-passenger ES6 SUV, in June. The company's research and development costs rose to $186.7 million in the second quarter, up 22.5% from the first quarter, on spending related to final testing of the new model before launch.
  • Between the recall, the sales decline, and costs related to the ES6 launch, NIO burned through more than half of its cash in the second quarter. The company said that it had $503.4 million in cash and equivalents as of June 30, down from $1.123 billion as of March 31. 
  • NIO said on Sept. 5 that it will raise $200 million by the end of the month, via the sale of convertible notes to its CEO, William Bin Li, and to an affiliate of key backer Tencent Holdings (TCEHY -1.74%). 

NIO's sales remained soft in the second quarter, and slumped in July -- but rose nicely in August as deliveries of the new ES6 hit their stride.

A bar chart showing NIO's monthly sales. Sales fell sharply in early 2019, but August was its best month of the year.

Monthly deliveries of the ES8 (in blue) and ES6 (in green) since ES8 production began in June 2018. Data source: NIO. Chart by author.

What management had to say

As noted above, NIO cancelled its quarterly conference call. In a statement, Li said that the company has been cutting costs, it will seek to reduce its headcount by about 2,100 employees (to about 7,800) by January, and it will take additional restructuring actions by year-end.

Li also said that, in a bid to increase competitiveness, NIO will begin delivering the ES6 and ES8 with 84 kilowatt-hour battery packs in October, giving both models increased range. Rival Tesla (TSLA -5.88%) is building a factory near Shanghai and hopes to begin deliveries of locally produced Model 3s by the end of the year. 

Looking ahead: NIO's guidance for the third quarter

For the third quarter of 2019, NIO expects:

  • Deliveries between 4,200 and 4,400 units, up 18.2% to 23.8% from the second quarter of 2019.
  • Total revenue between 1,593 million yuan ($232 million) and 1,663 million yuan ($242.2 million), an increase of 5.6% to 10.3% from the second quarter.

NIO's future is hanging by a thread and investors should proceed accordingly. But if it can slash costs, that $200 million cash infusion and rising sales of the ES6 might be just enough to help it stick around for a while longer.

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Stocks Mentioned

Nio Inc. Stock Quote
Nio Inc.
NIO
$14.55 (1.68%) $0.24
Tesla, Inc. Stock Quote
Tesla, Inc.
TSLA
$724.37 (-5.88%) $-45.22
Tencent Holdings Limited Stock Quote
Tencent Holdings Limited
TCEHY
$45.14 (-1.74%) $0.80

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