- NIO posted a strong September, ending Q3 on a high note as deliveries crested above 10,000 units for the month and nearly 25,000 for the quarter.
- NIO could face some production issues but looks poised for a solid Q4.
- The ET7 is one main catalyst surfacing next year as the company reaches its second international market.
NIO (NYSE:NIO) wraps up Q3 with a massive September, delivering over 10,000 vehicles as the manufacturer bounced back after a summer slump. Remember, back in August, NIO dropped its delivery guidance for the quarter down to 22,500 to 23,500 units, requiring September's figures to reach at least 8,600 units, a 51% m/m growth. NIO easily reached that guidance, showing resilience after a string of weaker months in the summer. The company is moving forward with the ET7 and international expansion, and capacity expansion at JAC should suffice until NeoPark becomes operational. Although current capacity constraints and forecast production levels could limit some upside to deliveries through Q4, the manufacturer recaptured momentum and has been upgraded to bullish again.
Graphic from NIO
NIO's September deliveries soared above 10,000 units for the first time, with the company posting 10,628 deliveries for the month, up 125.7% y/y. For the quarter, NIO delivered 24,439 vehicles, up 100% y/y, and topping the previously-lowered guidance by nearly 1,000 units, putting the company in the high end of its original guidance of 23,000 to 25,000 units.
It seems that NIO has easily moved past some of the supply constraints that had plagued deliveries in the past few months, with a bit of an inventory buildup flowing out this quarter. Demand remained very strong, setting the manufacturer up for a solid Q4, especially if it can top production capacity levels that it outlined earlier.
Data from NIO
On a vehicle basis, the ES6 drove the massive m/m jump in deliveries, with deliveries totaling 5,260 units. That's 124.6% higher than August's total, and the highest month so far for the vehicle. Deliveries of the EC6 rose over 88% m/m, reaching over 3,000 units for the first time, about 20% higher than June's old high. Moving into the winter months, where strong seasonality is typically exhibited in the Chinese market, NIO is setting itself up for a strong trajectory if it can continue to build off of this momentum, and not revert to a slump like the summer.
NIO's also facing some steeper competition from XPeng (XPEV), even though the manufacturers compete in different price segments. XPeng delivered 10,412 units for the month, up 199% y/y and nearly 45% m/m, as the manufacturer witnessed strong demand in the P7 sedan, as the P5 saw its first deliveries. NIO is making a foray into the sedan market with the ET7, and potentially with its mass market brand, and strong demand for XPeng's P7 and P5 could provide some fierce competition.
Q3 Totals and Q4 Projections
As previously stated, Q3's deliveries came in much stronger than anticipated, and Q3's financials should reflect a high rate of growth, potentially slightly above what was guided in Q2 unless lower ASPs persist.
Revenue growth for Q3 is likely to be near or slightly higher than anticipated, from Q2's guided levels as quarterly delivery amounts are almost 2% above than the midpoint of the guided range. NIO is targeting RMB8.91-9.63 billion (US$1.38-1.49 billion) in revenues for the quarter, with the figure likely to be closer to RMB9.4 billion (~US$1.45 billion) given the level of deliveries. In Q2, NIO recorded strength in margins as lower vehicle and materials costs offset softness in ASPs, while the current quarter could reflect some of the same. In all, it's looking like NIO will be able to post ~19% gross margin on ~20.5% in vehicle margin, while it's likely that increased R&D related to the ET7 launch soon and international expansion could keep the company unprofitable.
For the remainder of the year, production capacities will likely be a main factor in the overall level of deliveries for Q4; NIO had forecast production levels from 8,000 to 9,000 units for the year back in August, as it has been "working closely with our partners to improve the overall supply chain production capacity." It believes that its discussions with CATL give it enough supply to hit that level of production, even though overall capacity at JAC would allow more than double. In terms of imbalances, NIO sees that its "monthly order intake keeps growing, but the delivery volume will be determined by the overall capacity of the supply chain." If the company can sort out production and supply chain issues, deliveries for Q4 could reach 30,000 units or higher, although October's deliveries will provide more clarity on that projection.
In terms of other catalysts, NIO's ES8 launched in Norway on Sept. 30, with deliveries showing in Q4, while the ET7's production has begun ahead of a planned January 2022 launch in both China and Germany.
ET7 vs. P5
Graphic from NIO
NIO's ET7 is the company's flagship luxury sedan as it branches out from a main lineup in premium/luxury SUVs. The ET7 boasts autonomous driving capabilities, two floating displays lodged in a sleek, modern interior, with the "most powerful in-car mobile connectivity and communication capability, including 5G, V2X, Bluetooth 5.2, Wi-Fi 6, and UWB" powered by Qualcomm (QCOM). It also holds a 1,000 km range with the 150kWh battery pack, while range figures for the 100kWh and smaller battery haven't been stated. However, NIO has not unveiled BaaS pricing or discounts for a 150kWh pack, and other battery options should make the vehicle eligible for BaaS if offered.
The sedan is priced at RMB448,000 pre-subsidy and BaaS; with a 100kWh battery pack, the ET7 could be purchased as low as ~RMB302,000, shaving off nearly one-third of the sticker price. This allows NIO to more effectively compete on a price basis with Tesla's (TSLA) Model Y, while the Model 3 competes more so against XPeng's new P5 sedan. BYD's (OTCPK:BYDDY) Han is another high volume, lower-priced sedan that could add some pressure to both NIO and XPeng's new forays with the ET7 and P5.
The ET7 also will offer autonomous driving as a service, ADaaS, for RMB680 per month for those who sign up for it. This alongside BaaS provides small but more stable revenue streams for the company as it continues to grow deliveries within its current models and within the ET7.
A Recovery Underway?
NIO's strong September performance has greatly reduced fears that the manufacturer had been losing ground against peers, with those weaker summer months allowing XPeng to gain steam and BYD to extend a lead, increasing deliveries by nearly 10,000 units per month from May through August. NIO finally regained its footing and resurrected its growth trajectory, with triple-digit gains for the month and the quarter as deliveries crested the five-figure mark.
With deliveries in the high-end of original guidance, and easily topping lowered guidance, NIO is on track to post revenues near RMB9.4 billion, or US$1.45 billion for the quarter, even as some softness in ASPs could persist. Margins should remain strong unless vehicle and materials costs rise dramatically, although the company is expected to remain unprofitable as it continues to spend to develop the ET7 and move forward with international expansion. Germany becomes the second European market for NIO, with ET7's deliveries expected to start in Q1 there.
NIO has battled some production and supply chain issues during the summer months, but the trajectory setup from September into high-seasonal demand months in the winter lends a bullish take for the end of the year. Cresting above 10,000 units on a strong m/m jump provides an outlook for at least 30,000 units, production contingent, as the ES6 and EC6 posted stellar months.
Revenues are still growing rapidly y/y, around 108%, and nearly 12% q/q, representing solid growth as the company continues to scale and expand geographically ahead of two major catalysts - the ET7 launch, and NeoPark commencing operations four quarters out. Shares have remained range-bound for months, even as deliveries are showing signs of strength and revenue growth continues ahead of those catalysts; Q4's potential growth provides 20% upside to $42, with revenues up ~25% q/q should deliveries reach >30,000. For FY22, multiple catalysts emerging with a capacity driver at NeoPark paves the way for RMB66 billion (US$10.25 billion) in revenue potential, and upside to 7x revenues provides just above 35% upside to $50.
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