Shares of Nio (NIO 0.46%) skyrocketed Wednesday morning and were trading 11% higher as of 10:50 a.m. ET. The China-based electric vehicle (EV) company released its third-quarter numbers yesterday and reported a sharp jump in deliveries, but there's something even bigger that's caught the market's attention today.
Nio's Q3 deliveries surge, could spin off battery manufacturing unit
Here are some of the most important numbers from Nio's Q3 earnings report that every investor should know:
- Deliveries: Up 75% year over year and 136% sequentially
- Revenue: Up 47% year over year to $2.6 billion
- Vehicle margin: 11% versus 16.4% in the year-ago quarter and 6% in Q2
- Gross margin: 8% versus 13.3% in the year-ago quarter and 1% in Q2
- Net loss: Up 10% year over year to $625 million but down 25% sequentially
The only numbers you must focus on here are Nio's deliveries and margins. That's because both metrics were on a downslide in recent quarters. As I recently highlighted, Nio expected its margins to pick up the slack in the third and fourth quarters, and any improvement in margins could provide a much-needed respite to the stock price.
NYSE: NIO
Key Data Points
That's exactly what's happening today: Nio's stock is ripping higher as investors believe a turnaround is finally here. Management attributed better margins to higher average selling prices of EVs and cost-cutting and said the company has found further opportunities to reduce costs and improve efficiency. That means there's a chance that Nio's margins could improve further in the fourth quarter. It's also notable how Nio's net loss narrowed sequentially.
Amid the encouraging numbers from the EV maker, a Reuters report further created a stir among investors in the EV stock this morning.
Nio could reportedly spin off its battery manufacturing unit by the end of this year, according to Reuters, as the EV maker strives to cut costs and turn profitable.
Nio first confirmed it was developing its own batteries in mid-2022. The company, however, has delayed its plans since. At Nio's Q3 earnings conference call hosted yesterday, CEO William Li revealed that the company doesn't expect its in-house battery production to boost gross margin over the next three years as previously expected. Nio is therefore deferring the plan and will continue to outsource batteries.
The timing of Reuters' report, therefore, isn't a coincidence, and it seems a lot more likely for Nio to divest its battery manufacturing assets now that it doesn't find much value in producing mass batteries in-house.
Why now's an opportune time to buy Nio stock
Dwindling deliveries and margins hit Nio's stock price hard this year -- the EV stock is still down more than 25% in just the past three months after factoring in today's gains. Nio's latest numbers, therefore, are hugely encouraging. The EV maker is ramping up production, cutting costs, and prioritizing investments in core technologies, sales, and the timely launch of new products. With Nio also planning to launch its mass-market brand called Alps in 2024, it's one beaten-down EV stock that could be worth buying now.
