Nio (NIO +0.00%) reported its fourth-quarter and full-year earnings on March 22, and it said it expects to deliver only about 25,000-26,000 vehicles in the first quarter. That shouldn't come as a surprise given the supply challenges facing Nio, but here's the thing: If you didn't get a chance to look beyond that headline delivery number, you're missing something big.
Nio's Q4 earnings conference call, in fact, revealed so much about the company's moves and plans that they should form a key part of your investing thesis in the Chinese electric vehicle (EV) stock. Here are seven such things about Nio you must know.
Steady gross margin despite cost constraints
Raw material costs for electric vehicles (EVs) have risen so much in recent weeks that industry leader Tesla (TSLA +2.40%) was forced to increase prices of its vehicles twice within a span of few days.
Nio, however, still expects to generate vehicle gross margin (gross profit as a percentage of sales) of 18% to 20% in 2022 versus 20.1% in 2021. It's an important metric for EV start-ups in particular as vehicle gross profit shows the difference between sales and the cost of manufacturing a vehicle.
Nio is confident of navigating supply challenges. It is already working with partner CATL to boost battery supply and expects enough supply of high-end semiconductor chips under contracts with Nvidia and Qualcomm to meet its production target, including new models this year.
Image source: Nio.
Three EVs lined up for 2022
Nio confirmed plans to deliver three new EVs this year.
- Flagship sedan, ET7: Nio started ET7 deliveries on March 28. It said it received more orders after test drives than it expected and that initial orders are "much more" than media reports of 15,000 units.
- Midsize sedan, ET5: Nio launched the ET5 in December last year and expects to start deliveries in September. ET5 is Nio's second sedan, after the ET7.
- First SUV, ES7: Nio will unveil the ES7 soon and expects to start deliveries in the third quarter. Nio foresees a large market for the SUV that's expected to compete with BMW's upcoming X5 SUV.
Nio also plans to go global with these EVs.
Targeting a massive market
After entering Norway last year, Nio will expand into Germany, Denmark, Sweden, and the Netherlands in 2022. Importantly, this chart reveals why Nio's choice of Europe as its first international market to expand into makes so much sense.
Nio entered Norway with the ES8 SUV but will roll out the ET7 sedan first in Germany. The company also plans to sell the ET5 in Europe beginning later this year. By 2025, Nio expects to launch into 25 countries and regions worldwide.
Of course, Nio will require a lot money to execute these growth plans, but it already has its plans in place.
2022: A big spending year for Nio
Nio's research and development (R&D) expenditure jumped 84.6% to $720.6 million in 2021, partly because of higher spending on the design and development of new products.
Nio expects its R&D expenditure to more than double and R&D headcount to increase significantly to around 9,000 in 2022 as it invests in "long-term core technologies and some fundamental technologies, as well as the new products for 2023, as well as some product adaptation for the global market."
That's huge, and if executed well, more R&D should not only help Nio launch and deliver quality products this year but also put it on track toward its goal of being a mass-market EV maker.
Affordable Nio EV for all
Nio's CEO William Li has often dropped hints at various interviews in recent months about Nio's dream to build a mass-market brand and sell better cars than Tesla at lower costs. During its Q4 earnings call, Nio confirmed it wants to increase volume and expand its user base, but follow a different strategy from Tesla's.
Unlike Tesla, which launched Model 3 and Model Y for the masses at much lower prices than its premium Model X and Model S cars, Nio doesn't want to have big price gaps between its models when it launches a car for the masses. It believes a price band of $30,000-$50,000 a car is the right target for a mass-market brand.
Also, Nio said it will build a new brand to enter the mass market, taking a leaf out of Volkswagen's and Toyota's playbooks that own Audi and Lexus brands, respectively.
Other than a cheap Nio car, you could also see a Nio smartphone in the future.
Smartphone rumor may not be a rumor after all
Chinese media recently speculated Nio to be planning a cellphone business.
At its Q4 conference call, Li revealed Nio is indeed actively exploring possible connections between EVs and smartphones, as he believes there are a lot of synergies between these two products in terms of technology, supply, and software. Nio already launched augmented- and virtual-reality technologies with the ET5 and is now exploring more innovative applications for vehicles.
In short, a Nio smartphone that can interact with Nio EVs could soon be a reality. For now though, Nio is prioritizing what investors want to see: profitability.
NYSE: NIO
Key Data Points
2023 could be a pivotal year
This, perhaps, is the biggest takeaway for investors from Nio's Q4 earnings call: If the company's growth plans pan out as planned, it expects to break even in the fourth quarter of 2023 and generate its first full year of profit in 2024.
If Nio even inches close to profitability in the coming quarters, its stock price could catapult to highs not seen before.
