Nio's (NIO 5.26%) first-quarter earnings report came out this morning, and it's a bummer. No surprises, then, that the electric vehicle (EV) stock is plunging on earnings today.
The company already announced some weeks ago that it had delivered 25,768 EVs in the first quarter, so no surprises there. Nio's total revenue of $1.56 billion, up 24% year over year, also beat estimates. What the market perhaps didn't see coming, though, were lower margins, bigger losses, and a discouraging outlook.
However, some of the things that Nio said reflect strong growth ahead for the company. Does that mean today's drop in Nio's stock price is an opportunity to buy?
3 areas where Nio disappointed
Nio's margins in Q1 came in lower, both sequentially and year over year.
| Margin type | Q1 2021 | Q4 2021 | Q1 2022 |
|---|---|---|---|
| Vehicle margin | 21.2% | 20.9% | 18.1% |
| Gross margin | 19.5% | 17.2% | 14.6% |
Data source: Nio.
To be fair, nearly every EV manufacturer, including industry leader Tesla, is facing intense cost pressures -- prices of raw materials and metals like lithium and nickel, and key components like batteries, have rocketed in recent weeks. While most EV makers also hiked vehicle prices to offset higher costs, Nio didn't, and it blamed higher battery costs for the sequential decline in its vehicle margin.
However, the company had a different take on why its vehicle margin fell year over year -- lower average selling price because of a change in its product mix.
I dissected Nio's model numbers from Q1 2021 and Q1 2022, and the ES6 -- the company's lowest-priced trim -- made up nearly 52% of its deliveries in the first quarter versus 41% in Q1 2021. The company currently sells four models: three SUVs (ES8, ES6, and EC6) and one sedan (ET7), deliveries of which started on March 28.
Image source: Nio.
With Nio's selling, general, and administrative expenses, as well as research and development expenses, also surging year over year, its net loss shot up almost 300% year over year.
For the second quarter, the company expects deliveries to rise 5% to 14%, to 23,000 to 25,000 vehicles, and it expects to grow its revenue by 10.6% to 19.4% year over year. Both numbers indicate decelerating growth.
On a positive note, June should still be a much stronger month, as its guidance implies deliveries of 12,902 vehicles at the upper end. For perspective, the company delivered only 7,024 vehicles in the month of May. That confirms what Nio said earlier this month -- that it will ramp up production capacity and deliveries from June as China eases COVID-19 lockdown restrictions.
Nio is about to make a big growth leap
The EV maker's numbers may have disappointed the market, but the same cannot be said about its growth plans for 2022 and beyond.
Nio is on track to add two new EVs to its portfolio:
- Mid-size sedan ET5: deliveries expected to start in September.
- Mid-to-large size SUV ES7: to be launched this month for deliveries expected to start in August.
Nio further said its gross margin should rebound from the third quarter as deliveries are expected to rise rapidly in the second half of the year. Its second manufacturing facility is also on track to start production in the third quarter.
Importantly, the company is also working on a mass-market brand and now expects to start delivering a model for the masses by the latter half of 2024. This model will be priced around $30,000 to $45,000 per unit and run on its in-house batteries, as reported by new EV-focused Chinese website CnEVPost.
This, I believe, is the biggest takeaway for investors from Nio's earnings call today -- an affordable EV for the masses and in-house battery packs. While the first could give Nio a huge headway into the high-growth Chinese EV market, the second should make it vertically integrated, self-dependent, and less vulnerable to supply constraints.
Is Nio stock a buy now?
I'll get straight to the answer: Yes, Nio is a buy today, if you believe in China's EV growth story.
Nio is already a prominent player in the luxury electric car market in China. It sold more cars in April than the three biggest German brands combined (BMW, Mercedes-Benz, and Audi). With Nio now focused on a mass-market brand, it's clear the company wants a bigger share of the world's largest EV market.
Earnings fluctuations are nothing new for growth stocks. What matters is whether the revenue is growing or not. Nio leaves no room for complaints there: Its deliveries hit a record in May, its sales are rising steadily, and it earns positive gross margins. I believe Nio is one of those growth stocks that could be a huge winner over the next decade, and I'd consider any dip in the stock price an opportunity to buy.
