Nio Bets On China Auto Recovery To Lift Q4 Deliveries Above 40,000 A Month — But BofA Isn’t Buying The Bull Case

• Nio’s Q3 revenue guidance midpoint is about 7% below Wall Street’s consensus estimate.
• BofA cut its price target to $5.20 but maintained a ‘Neutral’ rating, implying 28% upside.
• Nio’s vehicle margin stood at 18.5%, while posting a third straight adjusted operating profit and expecting positive cash flow through Q4.

U.S.-listed shares of Nio, Inc. (NIO) came under pressure on Tuesday after the Chinese EV maker forecast a fourth-quarter (Q4) delivery rebound, but disappointing near-term guidance and rising expenses drew fresh skepticism from Wall Street.

Nio’s U.S.-listed stock closed 4% lower at $4.06 on Tuesday, marking their second consecutive decline and fourth loss in five sessions. 

Nio Bets On Q4 Recovery

Nio expects China’s passenger-vehicle market to recover in Q4 and is targeting average deliveries of more than 40,000 vehicles per month. “We expect that the passenger vehicle market to be able to recover in Q4 this year,” management said during the earnings call. “With that, our target for Q4 is achieving an average volume of over 40,000 units per month.”

The target implies more than 120,000 deliveries in Q4, compared with Nio’s third-quarter forecast of 108,000 to 111,000 vehicles. This would also represent a sequential growth of at least 8% from the top end of the Q3 range. Nio also expects annual delivery growth of between 40% and 50% over the medium to long term, driven by its product lineup and expanding sales and service network.

Nio’s Q3 Outlook Misses Estimates 

Before reaching the anticipated rebound, Nio must navigate a softer third quarter. The company expects Q3 revenue of between 33.29 billion yuan ($4.95 billion) and 34.05 billion yuan ($5.07 billion), up 53% to 56% year-over-year but well below Wall Street’s 36.33 billion yuan ($5.41 billion) consensus estimate. The midpoint of the range is about 7% below consensus.

Nio guided for 108,000 to 111,000 vehicle deliveries, representing growth of 24% to 28% from last year but only a modest sequential increase from the 107,658 vehicles delivered in Q2. After delivering 35,934 vehicles in July and 35,836 in August, Nio needs to deliver between 36,230 and 39,230 vehicles in September to hit its forecast.

BofA Flags Nio’s Higher Expenses

Bank Of America Securities (BofA) lowered its Nio price target to $5.20 from $6, still implying a 28% upside from current levels, and maintained a ‘Neutral’ rating. The firm noted that Nio was optimistic about demand for the flagship ES8 and ES9 SUVs, highlighting 11,000 ES8 shipments in August and 140,000 cumulative shipments over the past 11 months.

Nio said ES9 buyers currently face a wait of three to nearly four months, while around three-quarters of the model’s customers are new to the brand.

Still, BofA said higher operating expenses contributed to a bottom-line miss despite quarterly revenue landing roughly in line with its expectations. Nio’s selling, general and administrative expenses rose 23% sequentially and 12% year-over-year to 4.4 billion yuan, largely due to spending for new-product launches. Nio said 500 million yuan of Q2 sales expenses were one-time in nature and expects non-GAAP SG&A expenses to decline to between 10% and 11% of revenue during the second half.

Nio Q2 Review

Nio’s Q2 revenue jumped 69% year-over-year to 32.14 billion yuan, but missed Wall Street’s estimate of 33.28 billion yuan and the company’s guidance of 32.78 billion yuan to 34.44 billion yuan.

Vehicle sales rose 80% to 29.06 billion yuan, while deliveries climbed 49% to 107,658 vehicles but fell short of Nio’s 110,000-to-115,000 forecast. Its loss narrowed to 0.29 yuan per share from 2.31 yuan a year earlier, while adjusted diluted earnings of 0.01 yuan per ADS beat expectations for a 0.30-yuan loss.

Vehicle margin improved to 18.5% from 10.3%, helping Nio record a third consecutive quarter of adjusted operating profit. CFO Stanley Yu Qu expects positive operating and free cash flow to continue through Q3 and Q4, with the company’s cash position strengthening further in the second half.

How Do Retail Traders Feel About NIO?

On Stocktwits, retail sentiment for NIO climbed further into ‘extremely bullish’ territory at 89 out of 100 — its highest level in over three months — as 24-hour message volume surged 390% in the week leading up to the earnings report. However, the ticker’s watcher base edged 0.1% lower over the past month. 

One user said, “At some point whoever is shorting and manipulating  Nio’s share price will capitulate. At that point we should see a buy out offer and then we’ll know which competitor it was. I think it’s BYD. They have the most to lose if battery swapping succeeds.”

Another user said, “$NIO Ignore the analyst they want you to buy at 52 week high and they want you to sell at 52 week low.”

Nio’s U.S.-listed stock declined 36% over the past year. 

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