Nio Has Widening Q3 Losses on Weak Vehicle Margin and Rising Expenses

Nio’s (NIO) third-quarter revenue was near the midpoint of the company’s guidance and its first nine months’ revenue accounted for 57% of our previous full-year estimate. With enlarged losses on softer vehicle margin and rising operating expense levels, we slightly increase our net loss forecast for 2022-23. Management indicated the company aims to deliver 20,000 units of vehicles in December, which we believe beats market expectations.

We reduce our fair value estimate to $16 per ADS (HKD 126 per share) from $25.50 per ADS (HKD 200 per share), but we continue to like the company. Our fair value estimate implies a forward price/sales ratio of 2 times. Although there was a production hiccup in the first-month delivery ramp-up for ET5, we maintain our positive view as Nio enters a strong model cycle with improving sales momentum driven by new models.

We cut our 2022-24 vehicle delivery forecast by 12%-17% to factor in the COVID-19 disruption on production and now expect Nio to sell 125,358 units in 2022. As a result, our 2022-24 revenue estimates are also reduced by 12%-17%. We expect vehicle margin to record sequential recovery next year as economies of scale kick in to offset upstream cost pressure. With lowered volume expectations, but offset by expanding operating expenses, we slightly raise our 2022-23 net loss forecast and now expect Nio to record a net loss of CNY 14.0 billion in 2022 from our previous CNY 13.6 billion. We still expect the company’s net loss to narrow and reach breakeven in 2025 with CNY 1.7 billion in net profit as growing economies of scale and lower unit production costs will lead to an improved outlook for vehicle sales profit.