Shares of Chinese electric vehicle (EV) company NIO (NYSE: NIO) are trading sharply higher in US price action today after it reported better-than-expected Q2 earnings and provided upbeat guidance for the current quarter.
NIO’s deliveries rose almost 144% YoY to 57,373 units in Q2 which helped drive a 99% rise in its revenues. Expressing optimism over the results, NIO’s CEO William Bin Li said, “In the second quarter of 2024, NIO achieved a record-breaking delivery of 57,373 premium smart electric vehicles, securing over 40% of the market share in the battery electric vehicle segment priced above RMB 300,000 in China.”
NIO reported better-than-expected earnings in Q2
NIO’s gross margin jumped to 9.7% in Q2 which was almost twice what it generated in the previous quarter. Also, the margins improved considerably from the corresponding quarter last year when the Chinese EV company could barely manage a 1% gross margin. Its vehicle gross margin also soared to 12.2% which the company attributed to “cost optimizations.”
In absolute terms, NIO’s gross profits came in at $232.4 million in Q2 which was over 246% higher YoY. The company’s net loss also narrowed to $694.4 million in the quarter.
NIO’s CFO Stanley Yu Qu said, “We will continue to focus on efficient R&D and infrastructure investment, leverage the growth potential in the mass market, adopt flexible market strategies and continuously optimize our product portfolio. We are confident that these efforts will result in steady improvements in gross profit and cost efficiency in the future.”
NIO provided upbeat guidance for Q3
NIO expects to deliver between 61,000 and 63,000 vehicles in Q2. The company has delivered 41,600 cars so far in the first two months of the quarter which implies monthly deliveries in excess of 20,000 in September. NIO’s deliveries have been over 20,000 for four consecutive months now and its cumulative delivered reached 577,694 at the end of August.
Meanwhile, NIO’s Q3 guidance was better than expected as analysts were expecting the company to deliver around 57,000 cars in the quarter. The company’s revenue guidance was also similarly ahead of Street estimates.
NIO has a strong balance sheet
NIO reported cash and cash equivalents of $5.7 billion at the end of June. UAE’s CYVN Holdings has invested almost $3 billion in NIO which helped strengthen the company’s balance sheet.
Cash-rich countries in the Middle East are pivoting to green energy. Saudi Arabia for instance has formed a joint venture with Foxconn to produce electric cars in the country. The country’s sovereign wealth fund PIF (public investment trust) has invested billions of dollars in Lucid Motors and is the largest shareholder of the company with nearly 60% stake.
Volkswagen invested in Xpeng Motors
NIO is not the only Chinese EV company getting international attention and last year Volkswagen partnered with Xpeng Motors to build two EVs on its platform. The German auto giant also bought a stake in the company for a total consideration of $700 million. The deal was a pathbreaker for the Chinese EV industry as it reflected the confidence of the global auto giant in a startup EV company.
China EV price war
Meanwhile, Chinese EV shares have sagged amid the worsening price war in the country. As new EV models hit the road, the price war might only escalate in the coming months as companies try to push sales through aggressive pricing. These price cuts took a toll on the margins of all companies – including Tesla, whose margins were once the envy of the automotive industry.
That said, both NIO and Xpeng Motors have reported an improvement in their gross margins even as they are still posting a net loss.
Tesla CEO Elon Musk has 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.”
He added, “The Chinese car companies are the most competitive car companies in the world. So, I think they will have significant success outside of China depending on what kind of tariffs or trade barriers are established.”
Ford has also said that the company needs to compete with Tesla and Chinese EV companies to succeed in the electric car market.
NIO faces tariffs in Western countries
Meanwhile, in what’s a challenge for Chinese EV companies like Zeekr and NIO, Western countries are looking to clamp down on imports of Chinese electric cars. In June, the Biden administration increased the tariffs on Chinese EVs from 25% to 100%. Canada too followed in its footsteps and has hiked tariffs on Chinese electric cars.
The bigger blow for Chinese EV companies meanwhile came from the tariffs in the European Union as companies like NIO and Xpeng Motors were counting on the region to beat the slowdown at home.
All said, markets seem quite impressed with NIO’s Q2 earnings today and the shares are trading sharply higher. Even Xpeng Motors shares are up amid the renewed optimism towards Chinese EV shares which as an asset class has underperformed badly over the last many months.
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Mohit Oberoi
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