NIO Q2 preview: Where next for NIO stock?

When will NIO release Q2 earnings?

Chinese electric vehicle maker NIO is scheduled to release second quarter earnings before US markets open on Wednesday September 7. It will hold a conference call on the same day at 0800 ET, or 2000 in Hong Kong.

NIO Q2 earnings consensus

Wall Street forecasts revenue will rise 16% from last year in the second quarter to RMB9,800 million. The adjusted loss per ADS is expected to come in at RMB1.21, swelling from the RMB0.21 loss seen the year before.

NIO Q2 earnings preview

NIO’s production and profitability have both come under strain this year amid widespread supply chain challenges and Covid-19 disruption in China, but investors hope the second quarter will be the peak of its problems before leading to an improved performance in the third.

NIO beat its own target to deliver 23,000 to 25,000 vehicles in the second quarter, up over 14% from the year before but still below output in the first quarter of this year. Below is a table outlining how deliveries have fared so far this year:

Production has remained elevated in July and August compared to the trough seen in the second quarter, although this remained lower than what we saw in June. Still, markets remain hopeful that output will continue to climb – and at a faster pace – going forward.

Wall Street believes NIO will deliver 37,660 vehicles in the third quarter. That means the company needs deliveries to hit a new record high of 16,931 vehicles in September for it to meet expectations. In terms of guidance, markets are hoping NIO will target revenue of around RMB16,228 billion in the third quarter.

Looking further ahead, markets believe the ramp-up will accelerate in the final quarter of 2022, when analysts forecast deliveries will soar to 55,170 vehicles. That puts NIO on course to deliver 142,499 vehicles in 2022 if it meets forecasts for the remainder of the year, which would be some 55% higher than what it delivered in 2021. Markets will be eagerly on the look out for commentary about how renewed Covid-19 fears in China could threaten the ramp-up this year.

NIO’s profitability has taken a knock this year, with lower sequential deliveries and a tighter gross margin (with markets pencilling-in just 12.4% in the second quarter, down from 14.6% in the first quarter and 18.6% a year earlier) set to cause its loss to swell.

However, markets hope that the second quarter will be the trough, with deliveries to start accelerating and margins start to recover back toward the 20% peak seen last year. Wall Street hopes margins will recover to 16.5% in the third quarter of 2022.

‘With the deliveries of new products, higher revenue per vehicle and increasing production output, we expect the vehicle margin to start bouncing back from the third quarter,’ said CEO William Li back in June.

The premium ET7 that started to be shipped to customers in late March is set to contribute more to the sales mix going forward. The first of the new ES7 models should have been delivered to customers in late August, while the new ET5 should start to be sent out in September. Fresh capacity is coming online in the third quarter to support the rollout of new models and increased output levels.

Meanwhile, price hikes introduced to its other models back in May should also help as it grapples with higher battery costs. It is also set to revamp existing models including the ES8, ES6 and EC6 going forward, which will allow it to hike prices again.

Where next for NIO stock?

NIO shares continue to follow the downtrend that can be traced back to last December, having tested the ceiling on a more regular basis during the past two and a half months. A rise in trading volumes over the past five days, during which it has lost ground and pushed the RSI back into bearish territory, suggests the stock will remain under pressure going forward.

NIO shares last closed at $17.73, in-line with the low of the week before when it hit the trough of the last leg lower. This can be treated as the initial level of support, but the stock looks set to continue drifting toward $16 if the current downtrend continues.

If the results can provide a catalyst, then a breakout above the downtrend would prove significant. The immediate upside target would be the 200-day moving average at $22.85 before the June-high above $24 comes into view.

The 28 brokers that cover NIO remain bullish, with all but two believing the stock is significantly undervalued. The average target price sits at $35.15 to suggest the share price can almost double over the next 12 months.

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