A key indicator of EV companies

Chinese EV maker $NIO Inc (NIO.US)$ shares went down in premarket trading after it reported its Q2 earnings report before the bell.

Results

Total revenues were RMB10,292.4 million (US$1,536.6 million), representing an increase of 21.8% yoy and an increase of 3.9% qoq.

Net loss was RMB2,757.5 million (US$411.7 million), representing an increase of 369.6% yoy and an increase of 54.7% qoq.

Gross margin was 13.0%, compared with 18.6% in the second quarter of 2021 and 14.6% in the first quarter of 2022.

Nio's second-quarter EV deliveries rose 14% year over year. But they slowed in July and August compared to June, so business outlook will be the key.

Business Outlook

For the third quarter of 2022, the Company expects:

Deliveries of vehicles to be between 31,000 and 33,000 vehicles, representing an increase of approximately 26.8% to 35.0% from the same quarter of 2021.

Total revenues to be between RMB12,845 million (US$1,918 million) and RMB13,598 million (US$2,030 million), representing an increase of approximately 31.0% to 38.7% from the same quarter of 2021.

Despite NIO's decent growth guidance, similar challenges may lie ahead, and the valuations of these stocks could be at risk if there is no sign of recovery given higher raw material costs and supply chains.

The bottom line

Plus, shrinking gross margins have cast a shadow over investor confidence in its recovery.

For manufacturing enterprises, especially in the vehicle manufacturing industry, profitability indicators are often an important reference factor for analyzing their market competitiveness, mainly including gross profit margin and net profit margin.

Gross margin can be used to measure a company's efficiency or to compare two companies of different market capitalizations.

Generally speaking, the higher the gross profit margin, the stronger the competitiveness of the company's products, indicating that consumers are willing to pay higher prices than similar products.

“The nice trend will be their margins bottoming out and productions getting higher,” said Andy Wong, fund manager at LW Asset Management Advisors Ltd. “If their margins keep narrowing, indicating they will need longer time to become profitable, this could affect their valuations in the medium to long term.”