Model replacement pains continue, when will NIO-SW's performance "recover"? | Jianzhi Research

On the evening of June 9th, NIO-SW released its Q1 2023 report. Among the core indicators, NIO-SW's revenue in Q1 this year reached RMB 10.68 billion, a YoY increase of 7.7%, lower than the market's expected RMB 11.63 billion; net loss attributable to shareholders was RMB 4.803 billion, a YoY increase of 163.2%; gross profit margin was 1.5%, a decrease of 13.1 percentage points compared to the same period last year.

Huawei Wall Street Research believes that in the first quarter of the new energy vehicle market, where price wars are frequent, major new car makers are facing fierce competition. NIO-SW's sales performance is relatively good, barely holding onto its target market, and returning to the level of the third quarter of last year in just one month. However, it fell back to below 10,000 units in April and May, and it will take time to wait and see before it can reach the milestone of 15,000 or even 20,000 units again.

The continuous decline in gross profit margin and the gradual expansion of net losses are restricting NIO-SW's short-term profit expectations. The hope for the future will be entirely placed on the successful launch of new models.

As new and old models are replaced, whether NIO-SW can use sales growth and product gross margin improvement to inject a shot in the arm for the market and become the focus of investors' attention.

1. The road to sales of 10,000 units is still bumpy

Horizontally comparing, NIO-SW's sales performance in the first quarter of this year is in the middle position in the NIO-SW's sales performance in the first quarter of this year, with sales of 8,500 units, 12,000 units, and 10,000 units in the three months, with a total sales of 31,000 units, which is consistent with the guidance of 31,000 to 33,000 units in the first quarter.

In the fierce price war, NIO-SW did not show an ideal rebound, nor did it continue to decline like Xiaopeng. Overall, it was relatively average. However, according to NIO-SW's sales guidance for the second quarter of 2023, the company expects to deliver 23,000 to 25,000 vehicles in the second quarter, considering that NIO-SW's sales in April and May were 6,700 and 6,100 units, respectively, which means that the delivery volume in June is still hovering around 10,000 units. The overall sales situation in the second quarter is lower than that in the first quarter.

The lower-than-expected sales in the second quarter also directly lowered the expected revenue level, between RMB 8.742 billion and RMB 9.37 billion, a YoY decrease of 9%-15%.

Obviously, NIO-SW, which is deeply mired in the pain of old model upgrades, has not seen any improvement in sales in the second quarter of this year. At the beginning of the second quarter, NIO-SW's sales have been surpassed by second-tier new forces such as Lingpao and Nazha, becoming the only new car maker whose sales have been negative for three consecutive months. Huawei Wall Street Research believes that, This is also because NIO-SW's new models have always been continuously and actively launched ahead of schedule, but the actual delivery period in the true sense has been repeatedly delayed, undoubtedly bringing negative impact to NIO-SW.

Currently, NIO-SW cars are the most numerous among all new car-making forces, successfully converting many potential consumers into customers and placing early orders. However, due to delayed delivery, their patience has been exhausted. Delivery efficiency is the most important issue facing NIO-SW. Once there is improvement in this aspect, NIO-SW's performance will see a huge improvement.

2. Single vehicle revenue falls below RMB 300,000, and gross profit margin continues to decline

NIO-SW's gross profit margin saw a huge change starting from the fourth quarter of last year. In 22Q4, NIO-SW's gross profit margin first experienced a cliff-like decline, which was 13.27 percentage points lower than the gross profit margin level in the same period of 2021, with only 3.9%. Compared with a QoQ decrease of 9.44 percentage points in 22Q3, the automobile gross profit margin dropped directly from the previous range of 16%-20% to 6.8%.

In the first quarter of this year, NIO-SW's gross profit margin once again fell to 1.5%, a YoY decrease of 13.1 percentage points and a MoM decrease of 2.4 percentage points, but still remained positive.

The reason behind the sharp drop in NIO-SW's gross profit margin in the fourth quarter of last year was mainly due to the provision for inventory impairment and accelerated depreciation of production equipment. After excluding these issues, the gross profit margin level still declined and did not reach the normal level. This was mainly because in the first quarter, after Tesla initiated a price war, NIO-SW, which had never lowered its prices, was forced to follow suit and conduct promotional sales.

At the same time, NIO-SW's cheapest model, the ET5 (priced between RMB 3.2 million and RMB 3.8 million, while other models are priced above RMB 3.8 million), was recognized by the market after its launch in the fourth quarter of last year, and its sales volume rapidly increased, becoming the absolute sales leader. This also caused NIO-SW's single vehicle revenue to fall below RMB 300,000 in the first quarter of this year, reaching RMB 297,000, a QoQ decrease of RMB 70,000 and a YoY decrease of RMB 60,000.

3. Expenses remain high, becoming NIO-SW's unique "heart disease"

If NIO-SW wants to carry out its own product promotion strategy, continuously launch new models, expand sales network channels, rapidly build charging/swapping systems, and develop semi-solid-state new power batteries, which are either cutting-edge or continuous dreams and strategies, continuous investment in research and development, sales, and administration is essential.

NIO-SW's overall operating income in the first quarter of this year was RMB 10.68 billion, of which automobile sales revenue was RMB 9.22 billion, and R&D expenses were RMB 3.08 billion, a YoY increase of 74.6%, accounting for 28.8% of revenue.

However, sales and administrative expenses were RMB 2.45 billion, a YoY increase of 21.4%, accounting for 22.9% of revenue. The total expense ratio was as high as 51.7%, which was in sharp contrast to the gross profit margin of only 1.5%. Obviously, the cost of NIO-SW will be an important issue that the company must address.

Therefore, whether NIO-SW can achieve performance improvement in the future will depend on the smooth transition of its new and old models, the smooth delivery of new models, and the rapid conversion into product sales growth. Increasing revenue scale to amortize sustained high R&D and sales expenses will be an important condition for improving gross profit margin.