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NIO: Mounting Headwinds Batter Investor Confidence

·3 min read

NIO Inc. (NYSE:NIO) struggled in the first half of 2022 as economic turmoil and supply issues slowed production and sales growth. The Chinese electric vehicle maker has guided for a substantial uptick in the second half of the year. Investors do not seem wholly convinced, however.

The company will have an opportunity to address these concerns when it reports second-quarter earnings later this month.


Mid-year performance review

NIO sold 25,059 vehicles during the second quarter, up 14% year over year. June was especially important to this growth, with 12,961 units delivered during the final month of the quarter, up 60% year over year. The June boom was not enough to deliver sequential growth, however. The company's second-quarter delivery print fell 2.8% short of the 25,768 units sold during the first quarter.

During the first quarter, NIO brought in $1.48 billion in revenue, which translated to a GAAP loss of 17 cents per share. Revenue is set to decline in the second quarter due to lower unit sales and other economic headwinds. Analysts currently estimate that NIO will bring in $1.43 billion in revenue in the second quarter. Analysts predict a widening loss of 20 cents per share.

Despite recent downward revisions by several analysts, the consensus may still be a bit too generous. Headwinds from supply chain issues and rising costs likely did not help NIOs bottom line in the second quarter. A shortage of casting parts had a particularly negative impact on sales growth, especially for the ET7, the company's sole sedan model currently on the market.

What comes next

NIOs longtime promise of monumental growth is looking shakier. In July, the company delivered just over 10,000 vehicles, which increased 27% year over year but was down considerably from June and was just the fifth best month for the company overall. Notably, this was in spite of NIO having an additional model available in July 2022 that was not on the market the year prior.

The company does not have much time to get its growth engine back into high gear. In May 2021, NIO signed an extension to its manufacturing contract with state-owned JAC Manufacturing, doubling its unit production commitments to 240,000 vehicles per year. According to management guidance released in July, NIO aims to reach monthly production of 30,000 vehicles either in late 2022 or early 2023. However, the persistent headwinds that have slowed growth in recent months show little sign of dissipating anytime soon.

Still, NIO has a few positive things going for it, including two new vehicle models set to go to market in the third quarter. The first of these, the ET5 sedan, is scheduled for release in September. If NIO can ramp up production of these new models quickly, it may be able to get closer to its target. That is easier said than done, especially if the ET5 production line faces the same casting parts shortage that has thus far stymied production of its other sedan.

My take

Problems with sourcing parts and supplies, especially for the ET7, has already cost NIO some growth momentum. Those issues look likely to persist into the third quarter, at least. The stock was down 5% for the day on Aug. 9 and down 57.6% over the last 12 months. With a market capitalization still standing at more than $30 billion, the stock remains richly valued despite its recent battering by the market, in my opinion.

Investors interested in this name will be watching closely when NIO reports earnings for the second quarter, especially after the company opted to push its earning date out to Aug. 25.

This article first appeared on GuruFocus.