Chinese electric-vehicle maker NIO (NYSE:NIO) on Thursday reported a first-quarter loss that was narrower than Wall Street had expected, with management saying that more buyers had chosen well-optioned models, which improved the company's profit margin. 

However, the company warned that the ongoing global shortage of automotive semiconductors will probably limit its ability to increase production over the next several months.

While NIO's net loss of $744.1 million was much wider than its loss a year ago, its revenue of $1.22 billion was both up 481% from its year-ago total and well above Wall Street's consensus estimate of $1.06 billion. On an adjusted basis, excluding one-time items and stock compensation expenses, NIO lost $0.04 per American depositary share (ADS). Analysts had expected a loss of about $0.10 per ADS. 

Li is shown onstage with the ET7, a sleek white electric sedan.

CEO William Bin Li presented NIO's next new model, the ET7 sedan, at an event in January. Image source: NIO.

Highlights of NIO's first quarter 

  • NIO is closing in on operating profitability, at least when share-based compensation is excluded. Its adjusted operating loss ("adjusted" to exclude share-based compensation) fell to $45.2 million in the quarter, down 77% from the fourth quarter of 2020 and 87% better than a year ago.
  • NIO's gross margin rose to 19.5%, up from negative 12.2% a year ago and 17.2% in Q4 2020.  Not only did the company sell more vehicles, which certainly helped by improving its economies of scale, but its average selling price per vehicle was higher. 
  • Specifically, Chief Financial Officer Steven Feng said during NIO's earnings call, more buyers opted for larger 100-kilowatt-hour battery packs and the NIO Pilot advanced driver-assist system, increasing average transaction prices and profit per vehicle sold.
  • The automaker spent $104.8 million on research and development, up 31% from the prior-year quarter (when the initial outbreak of COVID-19 was at its peak in China), but down a bit more than 17% from Q4 2020. 
  • Feng said the quarter-over-quarter decline in R&D spending was a normal fluctuation, due to "different design and development stages with new products and core technologies," not an intentional reduction in spending. 

NIO had about $7.3 billion in cash and equivalents as of March 31, Feng said. That's an ample cash reserve -- and a huge change from a year ago, when the company was in acute danger of running out of money. 

The chip shortage strikes again

Back in January, NIO completed a series of factory upgrades that -- in theory -- give it the capacity to produce up to 10,000 vehicles per month. But as CEO William Bin Li explained during the conference call, NIO hasn't been able to consistently achieve that volume because of the ongoing shortage of semiconductors -- and he thinks the situation will get worse next month, in part because of a fire in March at a Japanese chip factory owned by auto supplier Renesas.

"We believe this negative impact [from the factory fire] is going to kick in around the middle of May, and this is going to affect the whole industry supply chain," Li said. "For the full quarter, we believe that it will be possible but still quite challenging for us to achieve 7,000 to 7,500 production units [per month]." 

"We are trying our best to secure the supply and to maintain the production speed, of course. We are quite confident, but the challenge is still quite daunting."

Li said that many in the industry expect the situation to turn around in the third quarter, and that chip supplies will begin to improve before the end of the year. But, he noted, some experts think the shortage could continue into 2022. 

Li's comments were similar to others made over the last week by executives at Ford Motor Company (NYSE:F), Honda Motor (NYSE:HMC), and BMW (OTC:BMWYY), among others. There are several efforts underway to boost chip-making capabilities in the U.S., Taiwan, China, and elsewhere, but these efforts will take several months (at least) to make a meaningful impact. 

Looking ahead: NIO's second-quarter guidance

NIO's official production and revenue guidance for the second quarter is in line with Li's comments about the company's expected manufacturing rate amid the chip shortage. NIO said that auto investors should expect:

  • Deliveries of between 21,000 and 22,000 vehicles, roughly double its Q2 2020 total and up about 5% to 10% from Q1 2021.
  • Total revenue in the range of 8.15 billion Chinese yuan ($1.24 billion) to 8.5 billion yuan ($1.3 billion), up modestly from the first quarter and up from 3.72 billion yuan in Q2 2020. 

The raw numbers

Metric Q1 2021 Q4 2020 Q1 2020
Revenue 7.982 billion yuan 6.641 billion yuan 1.372 billion yuan
Gross margin 19.5% 17.2% (12.2%)
Adjusted loss from operations 199 million yuan 871 million yuan 1.537 billion yuan
Net loss 451 million yuan 1.389 billion yuan 1.692 billion yuan
Adjusted net earnings per share (0.23 yuan) (0.93 yuan) (1.60 yuan)

Data source: NIO. Adjusted figures exclude one-time items and stock-based compensation costs.  As of March 31, 2020, $1.00 = 6.5518 yuan. 

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