The Chinese automaker operates in the ultra-modern yet volatile electric car manufacturing sector NOK (NYSE: NIO) fell more than 7.7% after reporting fourth quarter (Q4) and full year 2020 results on March 1. The temporary decline followed mixed results, with the company beating analysts’ expectations for earnings per share (EPS) but lacking in sales despite big year-over-year sales growth.
Now, after several weeks of summarizing the NIO report, investors seem more positive. What results will the report for the next quarter bring and where is NIO going in the long term? Let’s take a closer look.
How Wall Street rates NIO’s next quarter
Wall Street analysts’ consensus for NIO’s first quarter of 2021, which coincides with the first three calendar months of the year ending March 31, anticipates an overall improvement, although key metrics are expected to remain negative.
Looking at the return on sales and the related figures, the analysts expect a slight increase in sales from USD 1,017.8 million in the fourth quarter of 2020 to around USD 1,035.2 million. If accurate, that forecast will represent a $ 17.4 million increase, or roughly 1.7% quarter over quarter. Earnings before interest and taxes, or EBIT, are projected to be a loss of $ 208.3 million, while gross margin is projected to decrease from 17.2% to 16.3%.
On balance, Wall Street expects GAAP net loss to decrease from $ 228.7 million in the fourth quarter of 2020 to $ 184.2 million in the first quarter of 2021. The adjusted net loss should also approach breakeven. from a loss of $ 203.2 million in the fourth quarter to a loss of $ 166.3 million in the first quarter.
For EPS, net loss per share is expected to improve quarter-over-quarter by two cents under GAAP (loss of $ 0.14 versus a loss of $ 0.16), but to deteriorate for adjusted EPS by one cent (loss of $ 0.15 in the first quarter versus a loss of $ 0.14 in the previous quarter).
NIO earnings preview for the first quarter
NIO’s results for the last quarter also help highlight trends and provide indicators of where the company is headed in both the short and long term. The company missed sales but beat earnings per share (EPS) and posted a lower than expected loss per share:
|Metric||Q4 results||Year after year profit (loss)||Analyst forecast||Positive or (negative) surprise|
|revenue||$ 1,017.8 million||133.2%||$ 997.7 million||2%|
|GAAP EPS||($ 0.16)||– –||($ 0.06)||($ 0.10)|
|Adapted EPS||($ 0.14)||– –||($ 0.38)||$ 0.24|
|Vehicle deliveries||17,353||111%||– –||– –|
|Income from vehicle sales||$ 946.2 million||130%||– –||– –|
|Other sales (chargers, etc.)||$ 71.6 million||184.1%||– –||– –|
Economies of scale in production and lower raw material prices also contributed to the improvement in the margin on vehicle sales. In the fourth quarter of 2019, the vehicle margin was minus 6%, which means that NIO has lost money on every vehicle sold. By the fourth quarter of 2020 this was a positive value of 17.2%. Thanks to large-scale production, NIO was able to manufacture any car cheaply enough to make a profit on the vehicles it delivered.
NIO also provided guidance on expected first quarter 2021 results in several metrics. A total of 20,000 to 20,500 vehicles are expected to be delivered, which will increase deliveries by 15% to 18% compared to the previous quarter and increase vehicle sales by 421% to 434% year over year from the first quarter of 2020. The vehicle margin is also expected to improve as production efficiency increases.
The company’s forecast also envisages rising sales, up 11.2% to 13.8% compared to the fourth quarter of 2020 and 438.1% year-over-year to 450.8%.
The company’s forecast of $ 1,131.4 million to $ 1,158.2 million is significantly higher than the aforementioned Wall Street estimate of approximately $ 1,035 million in revenue for the first quarter. CEO William Bin Li said the company’s first quarter guidance is based on objective current sales. “The strong momentum continued into 2021 when we achieved historic monthly deliveries of 7,225 vehicles in January and robust deliveries of 5,578 vehicles in February, which is a strong 352% and 689% year-over-year growth, respectively. ”
However, investors were not thrilled with the results. In fact, the stock was shorted out, with the initial negative market reaction leading to a sell-off, and four days later, on March 5th, NIO’s stock fell from $ 49 to $ 51 prior to the earnings report to approximately $ 32 per share. Since then, NIO stock has rallied partially, trading in the low to mid $ 40 range, although it appears to have hit a temporary plateau that was slightly lower than prices between November and February.
NIO appears to have two factors behind its recovery. First, all electric car inventories gained from a battery-related announcement from Volkswagen AG (OTC: VWAGY). Second, the Chinese automaker got a boost of bullish energy from Mizuho Bank. The firm rated NIO as a buy with a 45% uptrend and assigned a price target of $ 60, well above the consensus price target of $ 49.94 reported by MarketBeat by 17 Wall Street analysts.
Mizuho explained his reasoning in a research report, calling NIO “a leader and innovator”. Pointing to the automaker’s home country as a huge asset, the bank noted that it is based in China, the largest and most productive market for electric vehicles in the world. It also highlighted one of NIO’s innovations as a source of strength, saying NIO benefits from “a key differentiation from competitors: a premium EV offering with lower operating costs through its novel Battery-as-a-Service battery swap module” as a Sales drivers for the future. Investors seem to have taken some of Mizuho’s words to heart and re-bid the stock, but remain cautious about bringing it to pre-earnings levels.
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Looking beyond NIO’s first quarter: is it a buy for long-term investors?
Given the strength of sales reported by NIO for January and February, it seems likely that the auto company could meet its guidance for the first quarter and beat Wall Street’s cautious, somewhat pessimistic guidance for the Chinese automaker. The warming March weather and improved driving conditions likely resulted in sales at least equal to January’s, nearly beating NIO’s forecast of 20,000 deliveries. If the company does surprise positively in both sales and earnings per share, then look for a surge in stock value as hesitant investors buy back into the stock.
In the long run, several factors may also support a rosy view of NOK. Achieving positive vehicle margins means the company is now delivering enough vehicles to allow manufacturing costs to scale, reducing unit costs below the threshold required for revenue to increase bottom line, rather than going deeper into loss float. The lightning-fast growth in sales of household chargers suggests a trend towards using electric cars among Chinese consumers.
Finally, Yahoo! Finances and The Wall Street Journal Increasing political tensions between the US and China are reportedly causing problems for NIO’s rival Tesla (NASDAQ: TSLA). Fearful of national security loopholes, the Chinese are restricting the use of Tesla vehicles by those with government ties, offering NIO a large potential market free from competition from Tesla or any overseas electric vehicle manufacturer. In the short and long term, the facts appear to support a moderately bullish case for NIO, suggesting that this might actually have the spark of success.