Can NIO Inc (NIO) Lower Cost And Subsidies In Q2 Help Boost Its Earnings?

This is inline with with the company's guidance on 06 June 2024 for the period ended 30 June, was for revenue between CNY16.59 billion and CNY17.14 billion.

Market consensus EPS estimate for NIO Inc is for a loss of $2.21 per share or 31 cents per share.

Chinese EV producer Nio, whose sales surged by 31pc year-on-year to 160,000 units in 2023, on 1 April began offering a 1bn yuan ($138mn) package of subsidies to encourage gas-fuelled car owners to trade in their cars for a Nio-produced EV. Fellow automaker Chery on the same day also announced a "10bn yuan subsidy" campaign to offer discounts, coupons and purchase tax credits to car buyers.

Nio, founded in 2014, took the lead in adopting an aggressive money-burning strategy to expand its share in the Chinese new energy vehicle (NEV) market, to take advantage of the country's ambitions to accelerate vehicle electrification. The strategy proved to be unsustainable and the firm faced financial issues around late 2019 when it had accumulated a loss of Yn26bn. This forced Nio to look for investors, and it received Yn7bn from the Hefei municipal government in April 2020.

These promotion campaigns are in response to a plan introduced by the Chinese government in early March to promote the replacement of industrial equipment and consumer goods through large-scale trade-ins, as part of Beijing's efforts to meet its economic growth target. China in early March set this year's economic growth target at 5pc, stable from the previous year's target, but lower than the actual growth of 5.2pc achieved in 2023.

The automakers' promotion campaigns are adding fuel to the flames of competition in the Chinese EV market. China's largest EV producer BYD has reduced prices by as much as Yn20,000/unit for some NEV models to boost sales after the 10-17 February lunar new year holiday, with many of its domestic NEV counterparts, including SAIC GM-Wuling, Neta, X-Peng and Zeekr, following suit by cutting vehicle prices to attract orders.

On 01 July NIO reported that they have achieved new record-high monthly and quarterly deliveries, which NIO delivered 21,209 vehicles in June 2024, increasing by 98.1% year-over-year, NIO delivered 57,373 vehicles in the three months ended June 2024, increasing by 143.9% year-over-year. Cumulative deliveries of NIO vehicles reached 537,020 as of June 30, 2024.

Nio had previously guided second-quarter revenue to be between RMB 16.59 billion ($2.28 billion) and RMB 17.14 billion, representing growth of about 89.1 percent to 95.3 percent from the same period in 2023.

The company currently delivers eight models -- ES8, ES7, ES6, EC7, EC6, ET7, ET5, ET5 Touring -- of which the first five are SUVs and the last three are sedans. Deliveries of the ET9 sedan, which was announced in December last year, is set to begin in the first quarter of 2025.

Nio's SUVs saw a dip in deliveries in June, offset by growth in sedan models. Revenues for the quarter to be reported are expected to have benefited from increased deliveries. However, that is likely to have been somewhat offset by pricing pressures thanks to stiff competition in the EV landscape. In June, the company slashed prices by $4,200 for all models, including its refreshed ES6 and ES8 SUVs.

So the question remain whether the intense price war that NIO has also participate did help to boost NIO sales, but not forgetting that NIO operating cost might also increase, hence, I will be looking closely at how NIO operating expenses stacked up.

Based on 9 Wall Street analysts offering 12 month price targets for Nio in the last 3 months. The average price target is $6.39 with a high forecast of $10.00 and a low forecast of $4.00. The average price target represents a 53.98% change from the last price of $4.15.

Judging from how NIO has performed over the last few months, it is difficult for NIO to go back to its 6 dollars level, unless we saw a significant improvement in its revenue and they could turn the loss into near break even or even profit.

Investors has suffered more than 50% loss in the stock price of NIO and with the competition and price war intensifies in China EV space, we could see that NIO stock price might not make any significant move upside.

There will be pressure selling as investors would lose confidence with the latest deliveries released for August where NIO delivered 128,100 vehicles year-to-date in 2024, increasing by 35.8% year-over-year. Cumulative deliveries of NIO vehicles reached 577,694 as of 31 August 2024.

Based on technical, it looks like NIO is trying to make a bullish crossover on the MACD and KDJ is showing signs of upside movement, but I am expecting a more positive and significant earnings improvement before we can see NIO hitting near 5 dollars or even crossing 6 dollars.

So I will be watching closely on the price action on NIO trading today (04 Sep) and also how investors perceive NIO with its latest deliveries report.

Whether the low cost and subsidies given by NIO for Q2 works, we will find out at its 05 Sep earnings result.

What I will be watching is the price action of NIO, and whether the low cost and subsidies implemented by NIO in April 2024 can really help in its earnings.

There are still competition from new incumbents and also consumer behavior in China might slowed down due to economic uncertainty.

Maybe I would take a small position in NIO to see if it can really perform and surprise.

Appreciate if you could share your thoughts in the comment section whether you think NIO could surprise in its earnings and give us a surge in its stock price.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.