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“Motivated by a greater sense of urgency, NIO’s operational execution has improved significantly in the past quarter with new models ramping quickly and sales efficiency improving,” Deutsche Bank analysts wrote in a note.
Deliveries for the second quarter have already been reported at 23,520 units, toward lower end of Nio’s 23,000-25,000 guidance. The analysts expect the Chinese car maker to report revenues of RMB9.1 billion, in-line with consensus, and anticipate vehicle margin could show small sequential improvement.
Following a record July where NIO delivered >20,000 vehicles for the first time, Deutsche Bank expects 3Q23 guidance to be >60,000, driven by a healthy ES6 order book.
“Positioning-wise, we think the stock can finally recapture momentum after being a relative laggard all year and also see some small potential for strategic optionality.” the analysts added.
They predict that Nio’s vehicle margin will improve in the third quarter, reaching double digits, and in the fourth quarter, it should exceed 15%, even after accounting for price cuts. In the first half, the margin was only 5-6%. Deutsche Bank believes this is doable based on factors outlined by management, although investors might not see the full benefits until next year.
Overall, Deutsche Bank increased estimated 2023 delivery forecasts by 10,000 units to 180,000 (+47% YoY) and adjusted gross margin estimates up by 40bps to 7.4%. Looking ahead, they also increased 2024 estimates for volume and margin.
Nio’s main concerns come from potential supply chain limitations and fluctuating demand. Shortages of components might limit sales expansion and extend delivery times for customers, negatively impacting order backlog. Additionally, generating demand is becoming tougher due to heightened market competition, and the transition of premium internal combustion engine buyers to electric vehicles is happening more gradually than expected.
Shares of NIO are down 3.47% in premarket trading on Friday.
