NIO shares crash after company reports mixed Q1 earnings

NIO shares are trading lower in US price action today after the company reported mixed earnings for Q1 2024. The price action is in contrast to rival Chinese EV company Xpeng Motors which impressed markets with its Q1 earnings, especially its margins.

NIO reported revenues of $1.37 billion in the quarter which was 7% lower than the corresponding quarter last year and fell short of the $1.44 billion that analysts expected.

The company’s gross margin was 4.9% in Q1 and while it was higher than the 1.5% it reported in Q1 2023, it was below the 7.5% it achieved in Q4 2023. Meanwhile, while NIO’s Q1 revenues fell short of estimates, its net loss was narrower than expected.

After a tepid start to the year amid the Chinese New Year Holidays. NIO’s deliveries improved in Q2 and it delivered 15,620 and 20,544 vehicles respectively in April and May, with the latter being a new monthly record.

NIO’s cumulative deliveries reached 515,811 at the end of May and it hit the milestone of surpassing 500,000 cumulative deliveries. The company forecast deliveries between 54,000-56,000 in Q2 which implies June deliveries between 17,836-19,836.

NIO Expects Gross Margins to Improve in Q2

NIO’s gross margins were in single digits in Q1. In response to an analyst question on whether the company expects margins to rise to teens as it previously guided, NIO said that it expects gross margins to rise to double digits in Q2 and then continue to improve in Q3 and Q4.

The company was however also cognizant of the price war in the Chinese EV industry and said, “But considering the intensifying market competition, we will also be more flexible on sales policy to make sure our market position is secure.”

EV Price War

There is an intense price war in the Chinese EV market as automakers have slashed prices to spur deliveries.

Last year, The China Association of Auto Manufacturers (CAAM) tried to bring about a truce in the price war. A total of 16 automakers including Tesla (which was the only foreign automaker in the lot) signed the pledge at an industry conference in Shanghai which stated they “take on the heavy responsibility of maintaining steady growth, strengthening confidence and preventing risks.”

However, the truce failed and shortly CAAM retracted the pledge and said that the EV price war agreement violated China’s antitrust law.

Analysts have also been apprehensive about EV shares amid the brutal price war. In its report last month, Bernstein said, “We expect competition within the domestic market to remain intense and put pressure on pricing and profitability.”

Last year, even NIO lowered car prices. Previously the company had categorically said that it wouldn’t join the price war. The price war has taken a toll on all the automakers and even Tesla’s operating margins – which were once among the highest globally – fell to 5.5% in Q1.

Europe is Considering Tariffs on Chinese EVs

Europe, which has emerged as a key export market for Chinese EV companies is considering imposing tariffs on imports of electric cars from China. The question of the tariffs which could be announced as soon as the next week popped up during NIO’s Q1 earnings call.

According to NIO, “Imposing tariffs on the new energy vehicles is actually going against the initiative of the sustainable development of all human kind.” However, the company said, “we will also adjust our directions and strategies according to the latest change on the tariffs of products.”

NIO said that the short-term impact of the tariffs would be quite limited for the company. It added, “For the longer term, be for new or for onload Firefly product, we will also develop and make necessary adjustments to our strategies according to the latest tariff policy.”

The US has also imposed tariffs on Chinese EVs

Last month, US President Joe Biden imposed tariffs on $18 billion of imports from China under Section 301 of the Trade Act of 1974. Unlike his predecessor Donald Trump who imposed blanket tariffs on imports from China, Biden’s tariffs are aimed at select goods which among others include renewable energy and electric cars.

Meanwhile, speaking at the VivaTech conference in Paris, Tesla’s CEO Elon Musk opposed these tariffs and said, “Neither Tesla nor I asked for these tariffs.” He added, “In fact, I was surprised when they were announced.”

The billionaire has meanwhile been all praise for Chinese EV companies and the country’s EV ecosystem. During Tesla’s Q4 2023 earnings call earlier this year he said, “Frankly, I think, if there are not trade barriers established, they will pretty much demolish most other companies in the world.”

NIO shares crash

Earlier this year, NIO shares fell to the lowest level since June 2020 amid the growing pessimism towards Chinese shares. Notably, 2020 was a pivotal year for NIO share and from surviving a bankruptcy scare in Q1 2020, the share went on to gain over 1,110%. The share hit their all-time high in early 2021 and its market cap topped $100 billion.

Since then, the share has been in a freefall, and after closing in the red for three consecutive years, it is down 42% in 2024 despite having rebounded from the lows. The shares are down over 6% today also as markets digest the company’s mixed Q1 earnings.