One of the most well-known electric vehicle makers released its highly anticipated second-quarter earnings last week. Nio (NIO -7.69%), a Chinese-based EV manufacturer, posted a lackluster Q2 report, and while there is reason for some hope, the company faces an uphill battle before investor confidence will be restored.
Since its founding in 2014, Nio has become a popular EV maker not only in China but also among American investors. From its IPO on the New York Stock Exchange in September 2018 to January 2021, Nio rose 520%, eventually hitting an all-time high of just under $62. But since then, the EV maker's stock has taken a beating and has fallen to around $21 as of this writing.
More sales and more new models
Although Nio investors were hoping for respite after a brutal start to 2022, a return to previous highs seems to be out of reach for now, based on the company's Q2 earnings report. Despite some potentially serious financial concerns, let's start with the good stuff.
Nio's lineup of options for drivers continues to diversify. In March, it introduced the ET7 electric sedan, and after the end of the quarter, the ES7 EV SUV started to make its first deliveries. In the near future, Nio will also be adding a new mid-sized sedan to its lineup, the ET5. While additional models are nice, they don't always ensure success. Statistics like sales, deliveries, and costs need to be evaluated to determine true progress.
In Q2, sales of Nio's vehicles rose 21% from the same quarter in the previous year and 3.5% from the first quarter. In total, Nio reached $1.4 billion in sales for the quarter.
While sales were up, deliveries took a slight hit. Nio delivered 25,059 EVs in Q2, representing a 14% increase from Q2 of 2021. Although it's an increase from last year and beat predictions, this number is down 2.8% from Q1 of 2022. In addition, revenue for the company beat analyst predictions but, unfortunately, grew by its slowest pace in the last nine quarters.
Costs continue to rise
Now comes the not-so-stellar news. Like many companies in the industry, supply chain issues, a global semiconductor shortage, and rising costs of production caused its bottom line to take a hit. The EV maker posted a net loss of $411 million this quarter, an increase of more than 369% from last year and a 54% increase from Q1.
Founder and CEO of Nio, William Bin Li, touched on the precarious position his company was in during the earnings call when he referred to the second half of 2022 as a "critical period" to scale up production and delivery.
In line with his comments, Nio is forecasting a slight increase in deliveries next quarter to somewhere around 31,000 and 33,000. It's also expecting an increase in revenue close to $1.9 billion or $2.03 billion.
The increase in those numbers is likely the result of Nio expanding its reach outside of China. In August, Nio's flagship sedan, the ET7, departed from Chinese ports to some European countries. This is the second car model to make landfall in Europe after the ES8 SUV launched in Norway last year.
Entering another market outside of China was imperative for Nio to maintain competitiveness as more market participants have risen to the forefront in recent years. Chinese-based EV rivals like BYD (BYDDY -1.32%), Li Auto (LI -0.54%), and XPeng (XPEV -5.58%) are making the market in Asia and China increasingly difficult to dominate. Multiple competitors are jockeying for position. Some are growing at a rapid pace, which makes difficult industry all the more challenging. For example, just last quarter BYD became the world's top-producing electric vehicle manufacturer. We also can't forget about Tesla (TSLA -2.76%) which controls a large portion of the market as well.
Staying away from Nio's stock is probably the best thing to do at the time. There are simply too many questions looming that won't be answered in the short term. Before adding Nio to a portfolio, investors should look for a successful launch abroad to bolster profits, an increase in deliveries and production, a resolve to supply chain issues, and, most importantly, a decrease in costs. These questions probably won't be answered until at least the next earnings report or even thereafter, so in an abundance of caution, let's wait and see what Nio's Q3 earnings look like. The potential is there, but so are some unanswered questions.