Things to Note Ahead of NIO’s Q3 Earnings: Is the Stock a Buy Now?

China-based EV company NIO Inc. NIO is slated to release third-quarter 2024 results on Wednesday, before the opening bell. The Zacks Consensus Estimate for the to-be-reported quarter is pegged at a loss of 32 cents a share on revenues of $2.7 billion.

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The loss estimate for the third quarter of 2024 has widened by a cent a share over the past 60 days. The bottom-line projection indicates a year-over-year improvement of 13.5%. The Zacks Consensus Estimate for quarterly revenues suggests year-over-year growth of 3.4%.

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For the current year, the Zacks Consensus Estimate for NIO’s revenues is pegged at $9.84 billion, implying a rise of 26.3% year over year. The consensus mark for the 2024 bottom line is pegged at a loss of $1.37 per share, indicating an improvement from a loss of $1.75 in 2023. In the trailing four quarters, NIO surpassed EPS estimates thrice and missed once, with the average earnings surprise being 8.92%.

NIO Inc. price-eps-surprise | NIO Inc. Quote

Our proven model does not conclusively predict an earnings beat for NIO this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. That’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

NIO has an Earnings ESP of 0.00% and a Zacks Rank #2.

You can see the complete list of today’s Zacks #1 Rank stocks here.

For the three months ended Sept. 30, NIO delivered 61,855 vehicles, representing an 11.6% year-over-year jump. This figure also reflects a rise from 57,373 units delivered in the second quarter of 2024. The third-quarter deliveries set a new quarterly record for the company, within its projected range of 61,000 to 63,000 vehicles.

NIO expanded beyond its luxury lineup with the launch of a more affordable ONVO brand. On Sept. 19, deliveries of L60— ONVO’s first product— commenced. In the third quarter of 2024. 832 L60 units were sold. L60 is cheaper than EV giant Tesla’s TSLA Model Y in China and is expected to challenge its market share.

Revenues for the quarter to be reported are expected to have benefited from increased deliveries. However, that is likely to have been somewhat offset by pricing pressure, thanks to stiff competition in the EV landscape.

Amid the volume ramp-up and cost optimization of components and supply chain, vehicle margins are on an upward trend. After the metric grew to 9.2% (up 4.1 percentage points year over year) in the first quarter of 2024, second-quarter vehicle margin came in at 12.2%. The trend is expected to continue in the to-be-reported quarter. Encouragingly, NIO targets vehicle margin of around 15% by the end of 2024.

Nonetheless, NIO has been bearing the brunt of operational inefficiency over the past several quarters. In the last reported quarter, SG&A expenses were up 31.5% on a year-over-year basis. The trend is expected to have continued amid an increase in personnel costs and a rise in sales and marketing activities. High operating expenses are likely to have weighed on profit margins. Investments in battery swapping stations and store expansion might also have adversely impacted cash flows and financials.

On a year-to-date basis, shares of NIO have declined 50.5%, underperforming the industry, sector and the S&P 500 Index as well as its close peers — Li Auto LI and XPeng XPEV.

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NIO is currently trading at a forward sales multiple of 0.49, lower than the industry as well as its median of 2.04 over the last five years.

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NIO stands out as a compelling player in the EV market, supported by an innovative lineup and strategic growth initiatives. Models like the upgraded ET7, ES6, ES8, ET5T and EC7, and the more affordable ONVO brand demonstrate its intent to cater to diverse market segments. With a goal to deliver 10,000 units in December and ramp up capacity to 20,000 per month by 2025, ONVO could significantly accelerate delivery growth.

The company’s Battery as a Service (BaaS) strategy, underpinned by its proprietary battery swap technology, provides a unique edge. Plans to add over 1,000 new battery swap stations in 2024 and extend the “Power Up Counties” initiative to 2,300 locations by 2025 underscore NIO’s commitment to enhancing infrastructure and solidifying its leadership in China.

In late September, NIO announced that NIO China would receive a new investment of RMB 3.3 billion from strategic investors. NIO will also invest RMB 10 billion to subscribe for newly issued shares in NIO China. This infusion of capital is pivotal for an EV startup like NIO, which is yet to achieve profitability, as it prepares for its next growth phase. The funding will bolster NIO’s financial stability, enabling the company to enhance its technological capabilities, expand its service offerings and strengthen its engagement with a growing user base.

With its innovative technology, diversified product strategy and improving financial footing, NIO appears well-positioned for long-term growth, making it a solid investment opportunity now.

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