On Thursday, Bernstein SocGen Group updated its outlook on NIO Inc (NYSE: NYSE:NIO), reducing the electric vehicle company's price target from the previous $5.00 to $4.50, while keeping a Market Perform rating on the stock. The adjustment follows NIO's third-quarter results, which were reported to be in line with expectations, featuring revenue of RMB 18.7 billion. This figure represents a slight year-over-year decrease of 2.1% but a sequential increase of 7.0% from the previous quarter.
NIO's third-quarter performance showcased a rise in vehicle sales volume, with 61.9 thousand units sold, marking an 11.6% increase year-over-year and a 7.8% climb quarter-over-quarter. However, the average selling price (ASP) saw a decline to RMB 270.0k per unit, dropping by 14.0% compared to the same period last year and 1.2% from the second quarter of 2024. The lower ASP was attributed to a weaker product mix and heightened promotional activity.
Despite higher sales volume, NIO's gross margin stood at 10.7%, with the vehicle margin showing improvement to 13.1%, up from 11.0% in the third quarter of 2023 and 12.2% in the second quarter of 2024. These gains were credited to a reduced cost structure and increased scale.
However, total operating expenses reached RMB 7.2 billion, accounting for 39.8% of revenue, driven by the rapid expansion of the ONVO store network. Consequently, the net loss for the quarter did not shrink in spite of the revenue increase and margin improvement, amounting to RMB 5.1 billion, or a net margin of -27.1%.
Looking ahead, NIO provided a softer guidance for the fourth quarter, projecting revenues between RMB 19.7 billion and RMB 20.4 billion, which would represent a year-over-year growth of 15.0% to 19.2%. The company also anticipates Q4 sales volume to be in the range of 72k to 75k units. The guidance takes into account an expected delivery of 20k units from the new ONVO brand in the fourth quarter, implying a potential quarter-over-quarter decrease in NIO brand deliveries of 10% to 15%, which is notably lower than anticipated for the industry's year-end peak season.
The report also highlighted concerns regarding the ONVO brand's L60 model, which sold 4k units in October, its first full month of delivery. The production ramp-up for the L60 is considered slower than expected, with prospective customers reluctant to place orders due to the vehicles not being eligible for trade-in subsidies until after the year-end. Bernstein predicts that the L60 will achieve a steady state of 7k to 8k units in monthly deliveries, despite aggressive promotional efforts to stimulate demand.
In other recent news, NIO Inc. has faced significant shifts in market outlook. Macquarie downgraded NIO's stock from Outperform to Neutral and reduced its price target by 27% to $4.80, citing a shortfall in fourth-quarter revenue and potential challenges with the Onvo model production. Meanwhile, NIO's financial standing was bolstered by a recent Rmb3.3 billion investment in NIO China.
In a strategic move, NIO is preparing to launch its first hybrid car model, the Firefly, targeting overseas markets. This development is aimed at navigating trade barriers and slower development of charging facilities in international markets. Concurrently, the launch of NIO's first SUV under the mass-market brand ONVO has boosted the company's product positioning, with Citi expecting steady sales for the new model.
Macquarie's analysis suggests that investors may need to temper their expectations for the company's growth in the near term. The firm's analysts have also expressed concerns over the impact of expiring local purchase subsidies on the orders for Onvo, estimating that 50-60% could be affected by the end of 2024.
InvestingPro Insights
To complement Bernstein's analysis of NIO's recent performance and outlook, InvestingPro data offers additional context for investors. Despite the challenges highlighted in the article, NIO's revenue growth remains strong, with a 30.94% increase over the last twelve months as of Q2 2024. This growth is even more pronounced on a quarterly basis, with Q2 2024 showing a remarkable 98.89% revenue growth.
However, profitability remains a concern, aligning with the article's discussion on NIO's net losses. InvestingPro Tips indicate that NIO is not profitable over the last twelve months and analysts do not anticipate the company will be profitable this year. This is reflected in the negative operating income margin of -34.75% for the last twelve months.
On a more positive note, NIO holds more cash than debt on its balance sheet, which could provide some financial flexibility as the company navigates its expansion and addresses the challenges with its new ONVO brand. The stock has also shown strong returns over the last three months, with a 16.54% price total return, suggesting some investor optimism despite the lowered price target mentioned in the article.
For investors seeking a deeper understanding of NIO's financial health and market position, InvestingPro offers 11 additional tips beyond those mentioned here. These insights could be particularly valuable given the stock's high volatility and the company's position as a prominent player in the competitive Automobiles industry.
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